A STUDY ON PORTFOLIO MANAGEMENT OF INDIVIDUAL

INVESTORS IN MUMBAI

A project Submitted to

University of Mumbai for partial completion

of the degree of Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

SRINITH SHETTY

Roll no. 52

Under the guidance of

Professor DHAIRYA VEERA

N.E.S Ratnam college of Arts, Science and Commerce,

Bhandup (West), Mumbai 400078

(2019-2020)
 DECLARATION

I Mr. SRINITH SHETTY the student of Bachelor of Commerce (Accounting &

Finance) Semester VI (2019-2020) hereby declare that I have successfully
completed the project on “A STUDY ON PORTFOLIO MANAGEMENT OF
INDIVIDUAL INVESTORS IN MUMBAI” for the academic year 2019-
2020.The project is done under the guidance of Mr. DHAIRYA VEERA and
this project work is submitted in the partial fulfilment of the requirements for
the award of the degree of Bachelor of commerce (Accounting & Finance).

The information submitted is true and original to the best of my knowledge.

Signature of student

SRINITH SHETTY

ROLL NO. 52
 CERTIFICATE

This is to certify that Mr. SRINITH SHETTY, Roll No. 52 of Bachelor of

Commerce (Accounting & Finance) Semester VI (2019-2020) has successfully

Completed the project on “A STUDY ON PORTFOLIO MANAGEMENT OF

INDIVIDUAL INVESTORS IN MUMBAI” under the guidance of Mr.

DHAIRYA VEERA for the academic year 2019-2020.

Mrs. LATA SWAMINATHAN Dr. MARY VIMOCHANA

(Course Coordinator) (Principal)

Mr. DHAIRYA VEERA

(Project Guide) (External Examiner)

 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. MARY VIMOCHANA for providing

the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator Mrs. LATA

SWAMINATHAN for her moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Mr.
DHAIRYA VEERA whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers
who supported me throughout my project.
 Contents
EXECUTIVE SUMMARY ..................................................................................................... 1

Chapter One: Introduction ..................................................................................................... 2

1.1 History .............................................................................................................................. 3

1.2 Elements and Characteristics ........................................................................................... 5

1.3 Portfolio Management Process......................................................................................... 6

1.4 Types of Investment Portfolios ........................................................................................ 8

1.5 Traditional Portfolio Theory and Modern Portfolio Theory .......................................... 10

1.6 Diversification of Portfolio ............................................................................................ 12

1.7 Asset Allocation in a Portfolio ....................................................................................... 14

1.8 Investment avenues for Investors ................................................................................... 15

Chapter Two: Research Methodology ................................................................................. 27

2.1 Objectives ....................................................................................................................... 27

2.2 Hypothesis ...................................................................................................................... 27

2.3 Scope of Study ............................................................................................................... 28

2.4 Limitations of the Study ................................................................................................. 29

2.5 Significance of the Study ............................................................................................... 30

2.6 Selection of the Problem ................................................................................................ 31

2.7 Methodology of Data Collection .................................................................................... 31

2.8 Sample Size .................................................................................................................... 32

Chapter Three: Literature Review ...................................................................................... 33

Chapter Four: Data Analysis and Interpretation ............................................................... 46

Chapter Five: Conclusion and Findings .............................................................................. 67

5.1 Findings: ......................................................................................................................... 67

5.2 Suggestions: ................................................................................................................... 70

5.3 Hypothesis testing: ......................................................................................................... 72

5.4 Conclusion:..................................................................................................................... 73

Chapter Six: Bibliography .................................................................................................... 74

Chapter Seven: Appendix ..................................................................................................... 77
 List of Graphs

List Page nos.

Chapter One: Introduction 1
Figure 1.1: Portfolio Management Process 6
Figure 1.2: Types of Investment Portfolios 8
Figure 1.3: Different Investment Alternatives 16

Chapter Four: Data Analysis and Interpretation 46

Figure 4.1: Investors‟ preference in Investment Avenues 47
Figure 4.2: Time period of investment undertaken by investors 48
Figure 4.3: Percentage of income set aside by investors for investment 49
Figure 4.4: Diagram showing factors to be considered while investing 50
Figure 4.5: Investors choice regarding monthly investments 51
Figure 4.6: Sources affecting investors‟ decision on investments 52
Figure 4.7: Investors‟ goals while investing 53
Figure 4.8: Investors‟ choice between debt funds and equity funds 54
Figure 4.9: Investors; choice between mutual funds and stock market 55
Figure 4.10: Investors‟ say on importance of financial advisors 56
Figure 4.11: Investors‟ ideal portfolio choice 57
Figure 4.12: Inconveniences and discomforts faced by investors 58
Figure 4.13: Diagram showing the risk takers and non-risk takers 59
Figure 4.14: Investors‟ choice of risky securities 60
Figure 4.15: Diagram showing percentage of investor satisfaction 61
 EXECUTIVE SUMMARY

Portfolio management is an art of making investment decisions and determining the

strengths, weaknesses, opportunities and threats in the choice of funds, that is, where one
must invest their money in an attempt to minimize risks while aiming at maximizing
returns. It provides the best investment plans that suit the investor‟s budget, income, age
and ability to undertake risks. Due to the market being volatile, an investor can make huge
profit or loss depending upon the market conditions and the investor‟s knowledge
regarding the market. Therefore, an investor should plan and design a portfolio that helps
the investor earn fruitful returns and rewards. This research mainly aims at finding out
what are the choices of funds of the investors, and to know if they are more open to risk or
not. The main objective is to understand the investors investing pattern at different age
levels, their risk appetite and risk tolerance and their overall ideal portfolio mix.

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 Chapter One: Introduction

Investment is an art that can be mastered or dealt with by planning well enough and
knowing what exactly one wants from the investment. Investing ensures present and future
long term financial security. Investments are important because in today’s world, earning
income from the job one does it just not sufficient to fulfill the needs and demands of an
individual, therefore investing helps individuals to incur that extra income that can help
them achieve their desired goals and aims in life. Therefore, making good investment
decisions is very necessary. It is very important to understand and study the market and its
fluctuations in order to earn fruitful returns. One can earn good returns from its
investments by creating a portfolio of investments that is diversified so as to reduce risk
and increase potential returns.

Portfolio management is all about making investment decisions and determining the
strengths, weaknesses, opportunities and threats in the choice of funds, that is, where one
must invest their money in an attempt to minimize risks while aiming at maximizing
returns. It provides the best investment plans that suit the investor’s budget, income, age
and ability to undertake risks. A portfolio consists of bonds, shares, mutual funds and other
assets that aim at making profits/ returns. Portfolio can consist of mix of debt investments
and equity investments. While debt and equity investments, both can deliver good returns,
they have differences that should be known. Debt investments are those that deliver fixed
payments in the form of interest such as bonds, etc. It ensures the investor fixed income
and also ensures lesser risk from the investment. On the other hand, equity investments are
those investments that do not guarantee fixed returns to the investors. There are few who
like to take risk while others avoid taking risk.

The younger lot of investors has more ability to take risk and therefore invest
usually in risky securities. Their goals and aims vary than that of the older generation.
Also, younger generation has an advantage and that is the time period. Younger investors
have the time and are flexible to study the market through their success and failures. Since
investing has a fair lengthy learning curve, young adults have the advantage because they
have years to study the markets and refine their investing strategies. Another plus point
about the younger generation of investors is that they are the tech savvy ones, and

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therefore they are able to study, research and apply online investing tools and techniques.
Whereas, the older lot of investors would prefer having a stable income and would not opt
for investing in risky securities. The main aim of investing of both the younger generation
and the older generation is saving for retirement. However, their investing strategies vary
due to volatility, time period and other factors. They have the disadvantage of time period;
therefore, they are more prone to not taking risk while investing. They are closer to their
retirement age, and hence avoid taking risky investment decisions.

Due to the market being volatile, an investor can make huge profit or loss depending
upon the market conditions and the investor’s knowledge regarding the market. Investing
definitely isn’t a nerve racking experience, provided decisions are made on the basis of
analysis and reasoning, and are not guided by whims, fancies and rumors. Some may find
it safer to invest in debt due to fixed returns while some may want to take up risks and
hence invest in equity. There might be few who invest in both, that is, debt as well as
equity. The main objective of investors is either income generation or wealth creation.
Therefore, for income generation the best option would be investment in debt, whereas for
wealth creation equity investments prove to be a better choice as the returns are more, but
at the same time it involves risk that is higher than that of a debt investment.

1.1 History
Before understanding about portfolio management and all aspects related to
portfolio management it is necessary to understand how this all began. In the 1930s, before
the advent of portfolio theory, people still had “portfolios”. However, their perception of
the portfolio was very different. The goal of most investors was to find a good stock and
buy it at the best price. Whatever were the investor’s intentions, investing consisted of
laying bets on stocks that one thought were at their best price. The loose ways of the
market, although tightened through accounting regulations after The Great Depression,
increased the perception of investing as a form of gambling for people too wealthy or
haughty to show their faces at the track. In the wilderness, professional managers like
Benjamin Graham made huge progress by first getting accurate information and then by
analysing it correctly to make investment decisions.

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Successful money managers were first to look at a company’s fundamentals when making
decisions, but their motivation was from the basic drive to find good companies on the
cheap. No one focused on the risk factor until a little known, 25 year old graduate student
changed the financial world. The story goes that, Harry Markowitz, then a graduate student
in operations research, as searching for a topic for his doctoral thesis. A chance encounter
with a stock broker in a waiting room started him in the direction of writing about the
market when Markowitz read John Burr Williams‟ book, he was struck by the fact that no
consideration was given to the risk factor that is involved in a particular investment.

The concept of portfolio management was developed and discovered by Harry Max
Markowitz. He was an American Economist, born on 24th August 1927. He was also a
professor of finance at the Rady School of Management at the University of California,
San Diego. The Portfolio theory was introduced in his paper „Portfolio Selection‟ which
was published in the Journal of Finance in 1952. The above reasons inspired him to write
and publish his first book on portfolio analysis. In 1990, he won the Nobel Prize in
Economic Sciences for the Theory, shared with Merton Miller and William Sharpe.
Markowitz is not only known for his pioneering work in Portfolio Theory. He is also much
known for the study of the effects of asset risk, return, correlation and diversification
related to investment portfolio returns. The interpretations of this theory led people to the
conclusion that risk, not the best price, should be the crux of any portfolio.

The implications of Markowitz theory broke over the Wall Street in a series of
waves. In olden days, the traditional portfolio managers diversified funds over securities of
large number of companies based on intuition. They had no real knowledge of
implementing risk reduction. Since 1950, a body of knowledge has been built up which
quantifies the expected risk and also the riskiness of the portfolio. Managers who loved
their “gut trades” and “two-gun investing styles” were hostile towards investors wanting to
dilute their rewards by minimizing risk. The public, starting with institutional investors
like pension funds, won out in the end. It is to be noted that, these days the concept of the
portfolio is so commonplace that it is hard to imagine things were any different. Though
investing has a history dating back centuries, the modern concept of the portfolio and the
management techniques applied today for investing today are really quite current.
Understanding how they came to be can help provide insights into the real nature of

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investing, the way most ordinary investors think, and how to approach making the best
decisions for any given set of objectives.

1.2 Elements and Characteristics

A portfolio that consists of the right mix of investments, that best suit the investors
choices that he/ she makes while investing forms a good portfolio. An investor should be
very clear with his ideas on how much, and for how long he/ she want to invest and what
are his/ her aims for investing. The portfolio should not expose the investor to any more
risk than is necessary to meet the investors‟ needs. For every investment portfolio, there is
a minimum level of risk and return that are necessary to safely achieve its objectives. It is
necessary to identify the amount and ability of risk level of the investors before evaluating
the quality of the portfolio. Portfolio management is planned in such a way to increase the
effective yield an investor gets from his surplus invested funds. By minimizing the burden,
yield can be effectively improved. A good portfolio is the one that gives a favourable tax
shield to its investors.

Investment safety or minimization of risks is one of the most important objectives of

portfolio management. Portfolio management not only involves keeping the investment intact
but also contributes towards the growth of its purchasing power over the period. The motive
of financial portfolio management is to ensure that the investment is absolutely safe. Other
factors such as income, growth, etc. are considered only after the safety of investment is
ensured. It is very important in any aspect of life to minimize the cost of any task to be
performed or anything to be achieved in the process of trying to reach the ultimate goal.
Similarly, a good portfolio is the one that tries to achieve its objectives in the lowest possible
cost. Risk is something that every investor tries to avoid at some course of their investment.
Therefore, in order for investors to know the quality of their portfolio, it is necessary to
understand how much return to expect from the investments. Risk efficiency can be achieved
by the investors by diversifying their portfolio. By implementing effective diversification as a
strategy, investors can stabilize their portfolio.

5
1.3 Portfolio Management Process
Investment management or portfolio management is a complex activity which may
be broken down into the following steps:

Figure 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.

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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‟ (equity
shares and units/ shares of equity oriented mutual funds) and „bonds‟ (fixed income
investment vehicles in general) in the portfolio. The appropriate „stock-bond‟ mix depends
mainly on the risk tolerance and investment horizon of the investor.

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 the other hand,
involves holding a broadly diversified portfolio and maintaining a predetermined level of
risk exposure.

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 (fixed income
instruments) are yield to maturity, credit rating, term to maturity, tax shield and liquidity.

Portfolio Execution: This is the phase of portfolio management which is concerned with
implementing the portfolio plan by buying and/ or selling specified securities in given
amounts. Though often glossed over in portfolio management discussions, this is an
important practical step that has a bearing on investment results.

Portfolio Revision: The value of a portfolio as well as its composition – the relative
proportions of stock and bond components – may change as prices of 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.

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. Such a review may
provide useful feedback to improve the quality of the portfolio management process on a
continuing basis. Investors should always evaluate their portfolio from time to time in order
to check and know where they can make necessary changes as and when it is required.

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1.4 Types of Investment Portfolios
The set of securities held by investors is called an investment portfolio. The
investment portfolio many contain just one security. However, since in general no investor
puts all eggs in one single basket, the investor tries to create a portfolio that contains
several securities. Such an investment portfolio is known as a diversified portfolio. An
investment portfolio can be classified in the light of following factors such as objectives,
risk levels and the level of diversification.

Types of Investment Portfolio

Based on
Based on Objectives Based on Risk Level
Diversification

Highly Diversified
Income Portfolio Aggressive Portfolio
Portfolio

Moderate Risk Moderately

Growth Portfolio
Portfolio Diversified Portfolio

Conservative or Lowly Diversified

Mixed Portfolio
Defensive Portfolio Portfolio

Liquid Portfolio

Figure 1.2

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Investment portfolio based on Objectives

On the basis of objectives sought, a portfolio can be income portfolio, growth portfolio,
mixed portfolio, tax saving portfolio or liquidity portfolio. In income portfolio, the objective
of the investor is to maximize the current income. Small investors and investors whose
current income needs are high like pensioners and unemployed persons and persons with low
tax brackets prefer income portfolios. Here the portfolio generally consists of fixed income
securities like debentures, bonds, income mutual funds, equity with continuous dividend
record, etc. On the other hand, growth portfolio stress on capital gain. Big investors, high
earning professionals and persons with income falling in high tax brackets prefer a growth
portfolio. This portfolio includes securities such as growth mutual funds, growth shares, etc.

On the basis of objectives, investment portfolio also includes a mixed portfolio that
gives moderate preference to both returns and growth. Salaried persons and middle-income
investors prefer to invest through such as portfolio. Here the portfolio consists of securities
like debentures and bonds, convertible debentures, growth as well as income mutual funds,
growth shares and so on. Liquidity portfolio is another type of investment portfolio based
on objectives of the investors. Liquidity portfolio emphasizes on easy offloading.
Frequently traded securities (with many quotations on a single day in stock exchanged),
gilt-edged securities, buy-back securities, etc, are included in this portfolio.

Investment Portfolio based on Risk Level

On the basis of risk level and risk appetite of the investors, a portfolio maybe
aggressive (high risk), moderate (medium risk) or conservative/ defensive (low risk).
Investors interested in assuming high risk go for aggressive portfolio. These investors
invest in extremely risky securities. They may select securities which have positive
correlation between them. They may get rewards in proportion to the risk they take.
Moderate portfolios have risks that are more or less equal to the market risk. Conservative
portfolios have far lesser risk than the market. A conservative portfolio consists of a high
load of risk free investments like bank deposits, government bonds, etc. The risk level
involved in a conservative portfolio is least among the other two portfolios that are based
on the risk factor. Therefore, investors that are not very open to taking risks choose the
conservative investment portfolio as it involves lesser risk in comparison to the other two
portfolio types.

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Investment Portfolio based on Diversification Level

On the basis of level of diversification, portfolio can be classified highly diversified,

moderately diversified and lowly diversified portfolios. High diversification may be taken to
mean that the portfolio has over 20 different securities in the kit, while a moderate
diversification includes 10 - 20 securities in the kit and low diversification means less than 10
securities in the portfolio. High diversification if properly done reduces the unsystematic risk
to zero. In moderate diversification means substantial unsystematic risk is present in the
portfolio. As the number of securities increase in a portfolio, the unsystematic risk reduces
and hence total risk reduces.

1.5 Traditional Portfolio Theory and Modern Portfolio Theory

Traditional portfolio management is a non-quantitative approach to balance a

portfolio with different assets, such as stocks and bonds, from different companies and
different sectors as a way of reducing the overall risk of the portfolio. Traditional portfolio
analysis has been of very subjective nature but it has provided success to some persons
who have made their investments by making analysis of individual securities through
evaluation of return and risk conditions in each security. In fact, the investors are able to
get maximum returns at the minimum risk or achieve his return position at the indifferent
curve which states his risk condition.

The normal method of calculating the return on an individual security in the

traditional portfolio theory was by finding out the dividends that have been given by the
company, the price earnings ratios, the common holding period and by an estimation of the
market value of the shares. It can be measured on each security through the process of
finding out the standard deviation. The traditional portfolio theory is based on the fact that
risk could be measured on each individual security through the process of finding out the
standard deviation and that security should be chosen where the deviation is the lowest.
Greater variability and higher deviations show more risk than those securities which have
lower variation.

The modern portfolio management theory differs from the traditional approach by the
use of quantitative methods to reduce risk. The modern portfolio theory quantifies the
relationship between the risk and return and assumes that an investor must be compensated

10
for the assuming risk. The modern portfolio theory believes in the maximization of return
through the combination of securities. The modern portfolio theory discusses the relationship
between different securities and then draws inter-relationships of risks between them. It is not
necessary to achieve success, only by trying to get all securities of minimum risk. The
modern portfolio theory (MPT) is a theory of finance that attempts to maximize portfolio
expected return for a given amount of portfolio risk, or equivalently minimize risk for a given
level of expected return, by carefully choosing the proportion of various assets. The main
objective of modern portfolio theory is to have efficient portfolio, which is a portfolio that
yields the highest return for a specific risk, or stated in another way, the lowest risk for a
given return.

Modern portfolio theory is a mathematical formulation of the concept of

diversification in investing, with the aim of selecting a collection of investment assets that
has lower overall risk than any other combination of assets with the same expected returns.
This is possible; intuitively speaking, because different types of assets sometimes change
in value in opposite directions. For example, to the extent prices in the stock market move
differently from prices in the bond market, a combination of both types of assets can in
theory generate lower overall risk than either individually. The theory states that by
combining a security of high risk, success can be achieved by an investor in making a
choice of investment outlets. The modern theory is of the view that diversification risk can
be reduced. Diversification can be made by the investor either by having a large number of
shares of companies in different regions, in different industries, or those producing
different types of product lines. Diversification is important but the modern theory states
that there cannot be only diversification to achieve the maximum return. The securities
have to be evaluated and thus diversified to some limited extent within which the
maximum achievement can be sought by the investor.

Thus, traditional theory and modern theory are both framed under the constraints of
risk and return, the former analysing individual securities and the latter believing in the
perspective of combination of securities. Traditional theory believes that the market is
inefficient and the fundamental analysts can take advantage of the situation. By analysing
internal financial reports and statements of the company, investors can make superior profits
though higher returns. The technical analyst believed in the market behaviour and past trends
to forecast the future of the securities. These analyses were mainly under the risk and return
criteria of single security analysis. However, modern portfolio theory, as brought about by

11
Markowitz and Sharpe, is the combination of the securities to get the most efficient portfolio.
The combination of investments can be made in multiple ways. Markowitz developed the
theory of diversification though scientific reasoning and methods.

1.6 Diversification of Portfolio

In order for an investor to reduce risk, the best way is by diversifying its portfolio.
It is said; never put all your eggs in a single basket. Similarly, one should not invest in just
one company or industry but try to diversify its risks and invest in different
industries/companies. The concept of diversification is basically to create a portfolio that
includes multiple investments in order to reduce risk. This is one of the most common
ways to reduce the risk of the overall investment portfolio. A diversified portfolio reduces
an investor’s risk by not being concentrated in one specific are of investment. If one
investment performs poorly over a certain period, the other investments may perform
better over that same period, reducing the overall potential losses of one’s investment
portfolio from concentrating all the capital under on type of investment. The loss of one
company is offset by the profit of the other. In this way, the investor can eliminate risk and
earn returns. By diversifying its portfolio, one is more likely to reduce volatility, that is,
risk and enhance potential returns. However, a diversified portfolio can consist of both,
diversifiable risk as well as no diversifiable risk.

Diversifiable risk also known as non-systematic risk is a risk that is company

specific or industry specific. This risk can be mitigated though diversifying investment and
maintaining portfolio diversification. Some examples of diversifiable risks are strikes,
product malfunctions, etc. and all these are company/industry specific. Therefore, a person
investing in one industry has high diversifiable risk or unsystematic risk. This risk is also
called avoidable risk. To avoid this, the investor should invest in other company/industry
stocks as well to diversify the risk in the portfolio, so as to have a lesser impact of an
adverse event in one industry. On the other hand, non-diversifiable risk is an unavoidable
risk. It affects all the industries in the particular economy and is not industry specific. The
effect of diversifiable risk also known as systematic risk, causes the stocks and shares of
all companies to move in the same direction. This risk occurs due to market risk, interest
rate risks or purchasing power risk, that is, risk due to inflation.

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 Therefore, the bottom line is that, diversification of portfolio can help an investor to
manage his risk. However, no matter how diversified one’s portfolio is, risk can never be
eliminated completely. Diversification will only help in minimizing the risk to a certain
extent. Risk associated with individual stocks and shares can be reduced to a certain
extent, but the general market risk cannot be eliminated and it affects nearly every stock,
therefore it is important to diversify among almost every asset class in order to reduce risk
and increase returns.

An investor can invest in equity shares as well as in bonds. An investor can also
invest in mutual funds to minimize their risk. Investing in different assets classes like
shares, bonds, real estate, gold and mutual funds, etc. will help the investor to reduce
his/her risk to certain extent but cannot eliminate risk completely. Portfolio diversification
will lower the volatility of a portfolio because not all asset categories, industries, or stock
move together.

However, it should be understood that just like under diversification could affect
investments in the portfolio, over diversification is almost as large a problem today as
under diversification. It is common for investors to believe that if a given amount of
diversification is good then more is better. However, this concept is false. If adding an
individual investment to a portfolio does not reduce the risk of the total portfolio more than
it costs in potential returns then further diversification would be over diversification. Most
experts believe that 12-25 individual investments are sufficient to reduce unsystematic
risk.

Therefore, it should be learnt that diversification of portfolio should be done in the

right manner. An over diversified portfolio can also hurt the investment returns. Therefore,
portfolio diversification should be managed properly. The optimum portfolio
diversification is to owe a number of individual investments large enough to nearly
eliminate unsystematic risk but small enough to concentrate on the best opportunities.
There are also many investors who concentrate their stocks and investments in one
company or industry leading to higher risk. Portfolio diversification is a balance between
concentration and over diversification. With a better understanding of what portfolio
diversification is, investors can build their risk management plan and establish their
optimal amount of concentration.

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1.7 Asset Allocation in a Portfolio

While diversification involves spreading assets around to various investment types,

the general approach of an asset allocation strategy is to determine which asset class to
invest in based on the investor’s risk tolerance and return on the risk level. Asset allocation
establishes the framework of an investor’s portfolio and sets forth a plan of specifically
identifying where to invest one’s money. It is said that proper asset allocation has the
potential to increase investment results and lower the overall portfolio volatility. It is to be
noted that asset allocation is the most basic and important component of investing.

Asset allocation is an investment portfolio technique which goes to balance different

types of risk and creates diversification by dividing tangible assets, current assets, and
movable assets, immovable assets among major categories such as cash, bonds, stocks,
real estate, options, futures and contracts of derivatives. Each type of assets has different
types and returns and risk, hence, each shall behave differently in over the different
periods of time. The amount in assets of an investor might have in stocks and bonds which
are based on two different factors. First the allocation is based on the expected returns that
an investor needs to meet their financial aims, and second, it is based on the amount of
investment, risk that a person can accept by knowing beta value.

A fruitful and successful allocation is one that achieves an investor’s financial

achievement (profit) without so much volatility that it causes the investors to make
different behavioural mistakes. Proper asset allocation is the key to all kinds of financial
empowerment. Even the highest-returns generating asset like equity funds can be of no use
unless the investor does prudent asset allocation. In asset allocation, investors seek
answers to questions such as where to invest, how to invest, how much to invest, etc. It
means that investors need to identify the assets classes and the proportion in which they
are holding these assets in their portfolio.

Asset allocation is important in two distinct ways. The first is from a portfolio design
standpoint. The theory assets that in any given period, some investment styles will be winners
and some will be losers, and this varies over time. The addition of investment styles that
perform differently than the rest of the portfolio (that is, have a low correlation) can reduce
overall portfolio volatility. This is because individual assets can be volatile, but in a well-

14
constructed portfolio, there will be other investments that partially offset that volatility, both
on the upside and downside, thus producing a more stable return pattern.

The second reason asset allocation is important is because it helps investors in

keeping a long-term perspective and avoids knee-jerk reactions. Investors have a tendency
to chase the best-performing segments of the market and shun poor performing areas. Yet
it is difficult to guess what areas will continue to shine and what the next market leaders
will be. Asset allocation therefore, in its most basic form is the decision of how to weight
stocks, bonds and cash in a portfolio in a way that provides the potential for the best
investment return for the amount of risk investors are willing to accept.

Traditionally, financial planning models focused on expected return and neglected

the variability of outcomes that is associated with increased volatility. With the advent of
probability-based planning tools, investors can see the potential impact of accepting more
(or less) risk by selecting a different model. A portfolio with greater risk may provide a
greater chance for exceeding one’s goals, but it also increases the chance of falling far
short. When using an asset allocation approach to designing a portfolio, it is important to
not focus just on the expected return of that portfolio. The risk associated with an
increasing, or decreasing, portfolio return is just as important to the success of an
investment strategy.

1.8 Investment avenues for Investors

Investors have now a huge number of securities lined up for the investors to invest
in. It is always important to know about the investment avenues made available to the
investors so that the investor can choose to invest in those securities that are suitable for
the investors and help them achieve their financial needs and goals. Investors should be
aware of the investment avenues being offered to them by the market and other investment
alternatives.

15
 Equity shares

Non Money
marketable market
securities instruments

Precious
Bonds objects and
securities
Investment
Alternatives

Life
Mutual fund
insurance
schemes
policies

Financial
Real Estate
derivatives

Equity shares

Equity shares represent ownership capital. Equity investments represent ownership

in a running company. By ownership, it means share in the profits and assets of the
company but generally, there are no fixed returns. It is considered as a risky investment but
at the same time, depending upon situation, it is a liquid investment due to the presence of
stock markets. As an equity shareholder, investors have an ownership stake in the
company. This is essential means that the investors have a residual interest in income and
wealth.

Perhaps the most romantic among various investment avenues, equity shares are
further bifurcated into blue chip shares, growth shares, income shares, cyclical shares,

16
speculative shares, etc. Investing in equity shares are preferred by those who like to take
risks. Equity shareholders are the owners of the company and therefore they have a say in
the decision making, etc. However, the investors have the disadvantage of higher risk as
compared to the preference shareholders and debenture holders. Their returns depend upon
how much profit the company earns.

Therefore, if the company is flourishing they earn higher returns, whereas, if the
company is not doing so well in its business, the investors will earn lesser returns or even
incur losses. Therefore, it should be known that investing in equity stocks and shares can
be rewarding, both personally and financially, but it does involve risk. The ones that have
the ability and willingness to take up such risks should invest more in equity shares. But, at
the same time, investors should also invest in other assets class in order to avoid major
losses that could incur through equity shares.

Investments in equities or stock of companies are done through stock market and
hence such investments are subject to market risk. Investors may enter into equity
investments directly by investing in shares of different companies or through diversified
portfolios of mutual funds (MFs). Staying invested in equities for a long term would fade
the impact of market risk and generate a return which is superior to all other asset classes.
As equities have the ability to beat inflation in the long run, they may be used for a long
run, they may be used for long term wealth creation. Equities are also tax efficient.
However, market risk affects the return directly in short term; therefore, investors should
avoid putting their funds in equity.

Mutual Funds

For the ones who have recently entered the market, mutual funds are something they
should start with. Instead of directly buying equity shares and/ or fixed income instruments,
investors can participate in various schemes floated by mutual funds which, in turn, invest in
equity shares and fixed income securities. Mutual funds can be classified into equity
schemes, debt schemes, balanced schemes, etc. For a new investor, mutual funds offer a safer
option to enter into the equity market. Mutual funds are not only managed by professional
fund managers who know their job of investing in the right sectors at the right time, but
mutual funds also offer a systematic investment plan allowing fixed monthly investments
rather than a lump sum investment in case of equity markets. However, for the more

17
advanced investors who know the fundamentals and the market dynamics of any company
and its growth prospects, investing in shares of that company could directly lead to a better
growth cycle compared to mutual funds.

Mutual funds have various schemes that help an investor, such as the systematic
investment scheme that helps investors to invest in smaller portions of fixed monthly
investments rather than investing a lump sum amount. This is a feasible option for those
who do not want to take huge risk. However, the ones who have the urge to earn high
returns maybe invest the whole amount in either mutual funds or into the market in stocks
and shares. But as it is said, there are two sides to a coin, just like there are certain
advantages and disadvantages of equity shares, while even mutual funds have certain
disadvantages. It is important to know and be aware of the various mistakes investors
make while investing in any security for that matter. Investors should be aware of the
frauds that take place while they invest in any security and should always stay away from
misleading rumours and information.

Mutual funds are subject to market risks, therefore it is very important for mutual
funds investors to read and be aware above all the terms and conditions mentioned in the
scheme, to avoid fraud or losses. Mutual funds help the investor to diversify his/her
portfolio. However, though the diversification helps in minimization of risk, these do not
result in maximization of returns to the investors. Therefore, the right skill, knowledge and
presence of mind are required while investing. For the ones who do not have enough
market knowledge, it is better to invest under professional guidance in order to avoid make
huge loses and enter into risky securities. Therefore, investing all depends upon the factors
mentioned above.

However, mutual funds and equity stocks, both, have their advantages and
disadvantages. It depends upon what suits the individual. There are multiple factors that are
to be considered such as age, ability to take up risk, time period of investment, amount of
investment, knowledge about the market, etc. Depending upon all these factors an individual
can select the kind of asset mix he/she that best suits his/her interests. It is very essential for
the investor to know how much of risk he/ she are willing to take upon themselves. This is
because risk is the main factor that leads people into either profit or loss. By setting a perfect
balance and mix of investments, investors can flourish in their investments. Apart from
mutual funds and equity shares there are multiple other options to invest in.

18
Debt funds

Another way through which one can earn returns is through investment in debt
funds. There are multiple types of debt funds such as debentures, bonds and other forms of
hybrid debt securities. However, bonds and debentures represent the majority of issued
debt capital. A bond is typically a loan that is secured by a specific physical asset.
Whereas, a debenture is a secured only by the issuer’s promise to pay the interest and loan
principal. Through such kind of debt investments, the investor gets assured of a fixed or
stable income.

This type of investment is the best option for an investor with low risk appetite. Debt
funds are an important instrument of investment and as an investor one should always
figure out what are the factors that make these funds relevant to invest. Debt funds are an
important component of a well-diversified portfolio as their returns are typically more
stable, that is less volatile, than that of equity funds. Thus, diversifying through debt funds
reduces the overall portfolio risk.

If one has a long-term goal that is to be achieved, debt funds are an ideal place to
invest. This is because debt funds are less volatile in comparison to equity funds, and one
can have predictable returns which help to plan and achieve the desired goal or objective.
Bonds and debentures represent long term debt instruments. The issuer of the bond
promises to pay a stipulated stream of cash flows. Bonds may be classified into
government bonds, saving bonds, government agency securities, PSU bonds, debentures of
private sector companies, preference shares, etc. The main reason why one should invest in
debt funds is the risk factor. Debt funds are less risky and are very optimal for those who
desire to have a fixed and stable income.

The myth is that the older generation prefers to invest in fixed income generated
investments; therefore, debt funds are best suited for the older generation. They are the ones
who try to use their money in the best possible way as they are closer to their retirement, etc.
and thus try to avoid taking huge risks. But though debt funds prove to be very fruitful for
many, some investors do not prefer to invest in debt funds. Debt funds are less risky, but at
the same time they provide lesser returns to the investor in comparison to that of equity
funds. Debt funds are also very complex to understand at times, as there are many options to

19
choose from while investing in debt funds and it becomes difficult for an investor to
understand the best options to select that fits their interest the best.

Non-marketable securities

A good portion of financial assets are represented by non-marketable financial

assets. A non-marketable security, typically a debt security, that is difficult to buy or due
to the fact that they are not traded on any normal, major secondary market exchanges.
Such securities, if traded in any secondary market, are usually only bought and sold
through private transactions or in an over-the-counter (OTC) market. Nonmarketable can
be classified into bank deposits, post office deposits, company deposits, provident fund
deposits, etc.

Non-marketable securities are frequently sold at a discount to their face value at

maturity. The gain for the investor from these non-marketable securities is then the
difference between the purchase prices of the security and its face value amount. When
making an investment in securities it is vitally important to understand the difference
between marketable securities and non-marketable securities. If one is making an
investment in order to resell a particular product or security with an aim to realize a profit,
then investing in non-marketable securities would not be recommendable.

However, on the other hand, if an investor is investing for their own future and are
not interested in offering their investment into the open market then nonmarketable
securities might be a perfect investment offer for such investors. These securities are not
traded in the market and therefore it is suitable for investors who do not want to invest
their money into the market.

Money market securities

Money market is the organized exchange on which participants can lend and borrow
large sums of money for a period of one year or less. While it is an extremely efficient arena
for businesses, governments, banks and other large institutions to transact funds, the money
market also provides an important service to individuals who want to invest smaller amounts
while enjoying perhaps the best liquidity and safety found anywhere. Individuals invest in the
money market for much the same reason that a business or government will lend or borrows

20
funds in the money market: Sometimes having funds does not coincide with the need for
them.

The major attributes that will draw an investor to short-term money market
instruments are superior safety and liquidity. Money market instruments have maturities
that range from one day to one year, but they are most often three months or less. Because
these investments are associated with massive and actively traded secondary markets, you
can almost always sell them prior to maturity, albeit at the price of forgoing the interest
you would have gained by holding them until maturity. Most individual investors
participate in the money market with the assistance (and experience) of their financial
advisor, accountant or banking institution.

A large number of financial instruments have been created for the purposes of short-
term lending and borrowing. Many of these money market instruments are quite
specialized, and they are typically traded only by those with intimate knowledge of the
money market, such as banks and large financial institutions. Some examples of these
specialized instruments are federal funds, discount window, negotiable certificates of
deposit (NCDs), euro dollar time deposits, repurchase agreements, government-sponsored
enterprise securities, and shares in money market instruments, futures contracts, futures
options and swaps.

Aside from these specialized instruments on the money market are the investment
vehicles with which individual investors will be more familiar, such as short-term
investment pools (STIPs) and money market mutual funds, Treasury bills, short-term
municipal securities, commercial paper and bankers' acceptances. When an individual
investor builds a portfolio of financial instruments and securities, they typically allocate a
certain percentage of funds towards the safest and most liquid vehicle available: cash. This
cash component may sit in their investment account in purely liquid funds, just as it would
if deposited into a bank savings or checking account.

However, investors are much better off placing the cash component of their
portfolios into the money market, which offers interest income while still retaining the
safety and liquidity of cash. Many money market instruments are available to investors,
most simply through well-diversified money market mutual funds. Should investors be

21
willing to go it alone, there are other money market investment opportunities, most notably
in purchasing T-bills through Treasury Direct.

Derivatives

Derivatives are financial securities with a value that is reliant upon, or derived from,
an underlying asset or group of assets. It is a contract between two or more parties, and its
price is determined by fluctuations in the underlying asset. Common derivatives include
forward contracts, futures contracts, swaps, options, etc. There are also many derivatives
that can be used for risk management or for the purpose of speculation. However,
derivatives are difficult to value because they are based on the price of another asset. It
should to be taken into consideration that derivatives are good for those investors who are
looking out for investment opportunities that can pay off in a shorter time frame.

If investors have a portfolio consisting of long term investments, such as stocks, etc.
and if such investors want to put their money to work, then derivatives is a good option to
invest in. The nature of derivatives essentially means that the opportunities for trading this
type of investment are limited only by the imagination. Derivatives can also be a good way
to add balance to your total portfolio, thereby spreading risk throughout a variety of
investments rather than in only a few. Making derivatives work requires careful research
and consideration just like any other investment opportunity. In short, derivates trading can
be an excellent way to either break into the trading market or round out an existing
portfolio. However, just like any other investment, investors should do a proper research
before investing into the derivatives market.

Life Insurance Policies

As the debate of whether investing in life insurance is a good idea or not continues
till date, one can surely come to the conclusion that there are more reasons why one should
do it instead of not investing if only one look around a bit. Investing in life insurance can
result in being one of the best and most important financial decisions that investors can
make. Life insurance comes down to the fact that it is a step taken to protect, care and
safeguard for the future. The first thing that can be thought of as the pros of life insurance
is the security for ones‟ family and loved ones that it offers.

22
 This is certainly the most important aspect that concerns persons. With life insurance
policies investors are assured in their minds that there is enough security for their family in
uncertain situations. Be it a property loan, a personal loan, a credit loan or any auto loan,
the insurance policies that one buy will help repay these debts. Investors also get the
benefits of different investment options by the variety of policies, which help the investors
achieve those long-term goals. But investors should be careful to read and go through the
risk factors very well before signing up for a particular policy.

There are various kinds of insurance policies like the term insurance, which lets
investors have protection for a fixed term and the benefits are paid during the event of
one’s death. One of the many reasons why people prefer to invest in a life insurance is
because of its tax saving aspect. Irrespective of the plan that one has taken, investors can
save tax with the different insurance policies. Therefore, life insurance policies also prove
to be beneficial to the investors as it offers tax benefits to the investors. Therefore, it is an
instrument, which helps you invest for a long time and achieve your goals later on.

Real Estate

Therefore, it was very important for investors to understand the risk aspect and how
much risk they are willing to take while investing. Another option open for investors is
investment in real estate. For many people, real estate is the easiest to understand investment
because it is simple and straight-forward. When one invests in real estate, the main aim
should be to put money to work today in order to make it grow so that one has more money in
the future. For the bulk of the investors the most important asset in their portfolio is a
residential house. Real estate buying can be really profitable to the investor, if the investor
does a good research about the price fluctuations, etc. There is always a possibility of making
huge losses, running in Lakh of money, if the dealing is not done efficiently.

In addition to a residential house, the more affluent investors are likely to be

interested in the few other types of real estate investments too such as agricultural land,
semi urban land, commercial property, a resort home, a second house, etc. Investors aim at
making enough profit/ returns to cover the risk that is taken, taxes that are paid, and the
cost of owning the real estate investment. Real estate investment can either be a
commercial estate, residential real estate, retail real estate, etc. each of these having its
own benefits. One of the major benefits of investing in real estate is the stable income it

23
provides to the investors. Investing in real estate is very beneficial as it provides investors
with long term financial security. It provides a steady income to the investor if put to
proper use, for example, given on rent, and thus provides financial security.

However, investing in real estate also has some cons, from high transaction cost to
lack of liquidity. Investment done at the right time after studying the market will help
investing in earning good rewards. Investors must learn how to find great deals, how to
evaluate real estate investment, and how to finance any properties the investor intends to
buy. Additionally, investors should treat their property as a business and nurture it as it
matures. It is likely not going to be totally passive up front, but as millions of individuals
throughout history have discovered, the payoff is well worth the journey.

But it is the same with all investment. Every investment has its advantages and
disadvantages. It all depends upon what kind of an investment portfolio the investor is
looking for, and what amount of risk is he/she willing to take up for that particular
investment. While some will want to invest in debt, some will go for investments in equity
funds. Few others will want to invest into mutual funds. The best way is to select such a
portfolio that will, despite the risk involved help to minimize the risk, if at all, it cannot be
eliminated completely. Investors are very fortunate as they have a vast range of asset
classes to choose from.

Precious Securities

Yet another investment option is investment in gold and other precious securities.
Investment in gold and other precious stones has been going on from ages. It is an age of
investment trend that is still being followed by a lot of investors and it has proved to be
fruitful for ample of investors. Any investor has to be aware about the different forms of
buying gold. It is to be known and understood that investment made in gold is not
generally going to help in achieving short term goals and desires. Investment in gold is
long term investment and does not give any current income to the investor. The only
exception to this is the dividend option it provides in the gold ETFs. If gold is held in
physical form, there is only of cash for the maintenance of lockers. Historically, gold has
been the perfect hedge for inflation.

But in terms of absolute returns has fared rather poorly giving returns above
inflation. Real estate and shares, however, beat gold squarely on the capital appreciation

24
front. In the short run, however, gold is a very strong bet compared to shares that are
highly volatile. The idea of gold investment is to use it at times when the markets are
falling and when the inflation is very high. Gold rates remain almost unaffected at the time
of inflation and therefore, one doesn’t have to suffer a loss when the inflation hits and even
when the currency rates go down in the global market. It is to be understood that gold does
not carry much risk (at least in India) as deflation is hardly seen in the real sense.
However, the real risk with buying gold is in the opportunity cost of investing in other
avenues that can actually give higher returns.

It is seen that gold scores the highest in terms of liquidity, compared to all other
investments. At any time of the day, an investor can convert gold into cash, making gold
an extremely liquid investment. Another benefit of investing in gold is that it is much
easier to buy gold than real estate or any other securities. It is a safe option for the ones
who want to start investing as the risk involved in gold investment is fairly very low. To
find out exactly, if this is a good idea to invest in gold lately, one must consider the cons of
it because one just doesn’t buy the pros, but also buys the cons and thus, one should know
what downsides he/she will have to face while investing in gold.

People make investments to arrange for a source of income for their postretirement life
or for their children. Gold investment is not the one made for this specific purpose as one
invests in gold once and sells the gold once, there is no continuous profit involved that flows
into the investor’s pocket. Therefore, gold probably is one of the best hard assets but when it
comes to investing in an income, it fails. Another drawback of investing in gold is that the
return rates of physical gold are never profitable if one invests in the gold jewels. Also, it is
difficult to store physical gold and there is a possibility of theft and safety issues.

In the current scenario where there is quality money in the markets, portfolio
management is very essential as it helps investors to reap the best fruits through their
investments by helping the investors to diversify their portfolio and minimize risk while
aiming at maximizing returns. Investors should consider and evaluate their risk- taking
ability in order to choose such investments that will be suitable for their amount of risk
they can take. Investors have a vast range to products to choose from and it becomes a task
to understand which investments suit the investors‟ interest and needs. There comes the
task of portfolio managers and other financial advisors who help their clients to invest in
securities that are as per the investors‟ needs. Portfolio management proves to be of great

25
help as it tries to minimize risk in circumstances where mitigating risk completely is not
possible.

26
 Chapter Two: Research Methodology

Portfolio management refers to managing an individual’s investment in the form of bonds,

shares, mutual funds, etc. so that the investors can earn returns and maximize their profits
within a stipulated time. It is an art of managing money of an individual under the expert
guidance of portfolio managers. For the study of this research it is essential to know what
investors want and expect from their portfolio and investments they make. The objectives
of the study are given below.

2.1 Objectives

1. To know whether investors are risk takers or non-risk takers, that is whether the
individual investors are open to invest in risky securities.
2. To find out which investment avenues do investors prefer to invest in, and what are
their choices of funds.
3. To find out whether investors are knowledgeable enough to invest in the market by
themselves or do they prefer taking the guidance of financial advisers.
4. To understand whether an investor’s ability to take risks is directly related to his
age. It is important to know whether the risk factor and ability to take risk depends
upon the investors‟ age.
5. To find out what are the inconveniences and difficulties investors face while
making investments
6. To find out how do investors manage their portfolio, that is, having more of equity
and less of debt or vice versa.
7. To find out whether investors are satisfied with the investments made.

2.2 Hypothesis

Portfolio management is all about having a mix of investments in order to minimize

risk by diversifying the risk across different investments while trying to maximize the
returns. It is necessary to understand and study the perspective of different investors from
the younger generation to the older generation. Therefore, for better analysis of the study it
is important to assume the design a hypothesis and later test it to check whether the results

27
stand true to the hypothesis or not. Hypothesis means to assume a situation before doing a
proper study on the subject.

Hypothesis 1:

For the purpose of the research, a prediction is made, that is the younger generation
is more into risky securities. Hypothesis is necessary while conducting a research. It helps
to analyse whether what one believes is actually true or not. The investors of this era are
very much aware of the risks and returns an investment will provide them; therefore, they
take every step very carefully. Therefore, the hypothesis is that the younger lot of investors
invests in more risky securities because they have more income at their disposal, however,
the older generation of investors are closer to their retirement, and therefore invest in less
risky or risk-free securities.

Hypothesis 2:

Secondly, out of the few facts known about portfolio management and investment
pattern of individual investors, it is observed that investors prefer to invest in equity if
given a choice. Therefore, this forms the second hypothesis for the study, and with the help
of surveys and questionnaires it will be easier to know what the investors desire.

2.3 Scope of Study

The study of portfolio management and investment decisions is a very vast concept.
The study mainly focuses on how to design the ideal portfolio in order to maximize returns
while trying to minimize risk. The right amount of funds required in order to obtain and
achieve the aims and desired goals of investors is also necessary to be taken into account.
This research is restricted to the study investments in stocks and debt funds and also in
mutual funds. It discusses how investors can benefit from their investments and which
types of investment avenues are available for investing.

The study of portfolio management is studied in detail and the research also gives
importance to the concept of diversification. The study explains how diversification of
various investments will help investors to reduce risk, as eliminating risk completely is
inevitable. The study shows why diversification is important and how will it benefit the
investors in the long run as well as in the short run.

28
Diversification helps investors to diversify their risk, helping the investors incur lesser
losses in comparison to that when diversification is not done. By considering the concept
of diversification while investing, investors can put their investments to better use.

The study is conducted for the individual investors in and around the city of
Mumbai, and it consists of investors at different ages. This will help to understand what
the investors expect at different levels of age group. The study takes into account all the
factors that are necessary to be given importance while investing, for example, age of the
investor, amount of funds available for investment, preference and choice of funds, time
period for investing, and many more. The main aim of the research is to know what
investors expect from their portfolio and what their definition of an ideal portfolio is. The
study focuses on how to enhance one’s portfolio through the help of one’s personal
knowledge or through the guidance of financial advisors and agents.

The research also suggests why portfolio management is essential in the modern
world. It shows how portfolio management has adapted from the traditional approach to
the modern approach of portfolio management and how investors have the scope and
opportunity to choose from huge lines of securities. While the traditional method focused
on minimizing risk of one security or of multiple securities, the modern study aims that
diversifying the investors‟ risk so as to help them reap better fruits from their investments.

2.4 Limitations of the Study

While conducting the study for the research there are certain things that are
restricted to the research. Limitations of the study are those characteristics of design or
methodology that impact or influenced the interpretation of the findings of the research.
Overcoming these drawbacks and limitations are difficult. Every study has certain
restrictions and limitations that the researcher faces while doing the study.
The limitations in this study are as follows:

1. The study of this research is limited to the City of Mumbai.

2. The study of portfolio management and investment planning is a vast concept and
the time period is limited for collection of data.

3. The age group of investors for this study is between 25 years to 55 years of age.
There the age limit is restricted. There are many investors who have above the age

29
 of 60 and their investment choices cannot be taken into account due to the age
limit.
4. The study of portfolio management is a huge concept; however, all the investment
avenues are not taken into account. Only investments in equity, debt and mutual
funds are given importance. The study does not focus on investments made in real
estates, gold, etc.
5. Since the study is restricted to the place and age group of investors it gets difficult
to get respondents for the study.

2.5 Significance of the Study

Making the right investment decisions is important in order to not incur a huge loss
of money due to lack of knowledge about the investment avenues and market conditions.
Therefore, the study will help investors to understand the importance of managing their
portfolio. Investors should use their personal knowledge if they have sufficient knowledge
about the markets to invest or else take the advice of financial advisors and agents.
Investment in today’s world is very essential as the income earned by doing a job is just
not sufficient to provide and finance all the needs of an individual. Therefore, investment
in the right place that suits the investor the best should be taken note of. For the ones who
are willing to up risks should invest in equity funds as it will ensure them good amount of
returns if they invest at the right time. While those who are restricted to taking risk, should
invest in debt funds or fixed income generating securities.

It is always better to save and invest at an early age, as the ones who invest while
their young have a longer time period of putting their savings to use. They have more
scope and opportunity to put grow their money. However, it is never late to start investing.
Investing can always benefit both the older as well as the younger generation of investors
as it is always better to put money to use rather than just storing the money and not making
efforts to earn some revenue on it. Investing always involves risks; however, the right mix
of investments will help investors to minimize their risk, though eliminating risk
completely is inevitable. Therefore, while investing investors should always make a note
to invest in different line of products in order to diversify the risk that is involved in
particular securities.

30
2.6 Selection of the Problem

Choosing the right set of investments is very important, therefore, investors should
study the markets well enough, or take the guidance of financial advisors to study and
select the portfolio that is designed in such a way so as to reduce to risk of the investor and
maximize the investor’s returns. This study is conducted to understand how the investors
in Mumbai city manage their portfolio, and what kind of investments do they enter into.

2.7 Methodology of Data Collection

Data collection forms a very important part of the research. It plays a very crucial role
in the statistical analysis. Therefore, in order to obtain the necessary information and data
essential for the study, it is important to choose the right mode of data collection. Since the
study is about portfolio management of individual investors in the City of Mumbai, it is
feasible and more recommendable to use the primary source of data collection. Primary
source of data collection is basically the new sources and not the source that is already
published. It is carried out to answer certain issues or questions. It involves questionnaires,
surveys or interviews with individual or small groups. Primary source of data collection will
help in the study and will provide answers for the questions not known.

Primary data collection:

Questionnaire is one of the techniques used to for this study. Preparing a

questionnaire and circulating it around the city will help to do the research in a better way.
It will also help in knowing the investors opinions and since the age group of investors is
between 25 years to 55 years it will be able to find out how and what are the investment
patterns and portfolio choices among different age groups. Investment is an art that can be
mastered by study of the markets. Therefore, through primary source of data collection, it
will be easier to know what investors expect from their investments.

The questionnaire should be effective enough to obtain the necessary data required
for the study. It is very essential to choose the right set of questions in order to conduct the
research. For the purpose of the study questionnaires shall be used. Primary data will help
to get data that will not always be available through secondary source of data collection.
The primary data is that data obtained through the personal knowledge and expertise of the
respondents. One of the most important advantages or primary collection of data is that the

31
data collected and first hand and is accurate. Data that is available is collected for the first
time, unlike that of secondary data that is produced and written by others. For better
understanding of the research primary data is used. It will help to know what the investors‟
opinion regarding portfolio management and investment decisions are.

Secondary data collection:

On the other hand, this study will also involve data collection in the form of secondary
data. Secondary data of collection is the data that is second hand, that is, the data has been
published or written or spoke about by someone before. Secondary data can involve data
collection through books, magazines, journals, newspapers, and mainly the internet, articles
published by other researchers, etc. This will help to understand the concept better, as
secondary data method is more informative and helps to understand the study by reviewing
others‟ published articles and books. The combination of primary and secondary sources of
data collection will make the study stronger and impactful. It will give better understanding
to the study as the study will involve, both, first hand data as well as second hand data. Since
secondary data is not as accurate as primary data, a combination of both the sources of data
collection will enhance the study.

2.8 Sample Size

Selecting the right sample size is very essential in order to get the desired results
from the respondents. If the sample size is small it gets difficult to make conclusions,
therefore the small size should be such that will help to get an accurate result. Therefore,
for the study a sample size of 50 respondents is taken into consideration. The sample size
can exceed 50 respondents for more accuracy if desired.

The sample size is divided into three age groups, varying from the ages of 25 years
to 55 years. First age group will consist of the younger generation of investors, that is, 25
years to 35 years of age. The second age group is the middle ages investors consisting
between the ages of 36 years to 45 years. And finally, the last age group is made up of the
older generation of investors, between the age group of 46 years to 55 years.

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 Chapter Three: Literature Review

A literature review is an evaluation report of information found in the literature related to

your selected area of study. The review should describe, summarize, evaluate and clarify the
literature. The literature review should give a theoretical base for the research and help the
researcher to determine the nature of the study. A literature review is conducted to know the
past studies conducted by various researchers on portfolio management and investment
management of individual investors by going through the study conducted by the researchers
and reviewing the research papers, articles and books. Various researches, books and articles
are written and conducted on the study of portfolio management and on how to enhance one’s
portfolio.

Doing a careful and thorough literature review is essential while conducting a study
or research at any level. It is a basic homework that is assumed to have been done
vigilantly, and a given fact in all research papers. It is not only surveys what research has
been done and conducted in the past on the study, but it also appraises, encapsulates,
compares and contrasts, and correlates various scholarly books, research articles, and other
relevant sources that are directly related to the current study or research. A literature
review in any field is essential as it offers a comprehensive and recapitulation on the given
scholarship from the past to the present, giving the reader a sense of focus as to which
direction the study has headed.

 The Four Pillars of Investing: Lessons for Building a Winning Portfolio

By William Bernstein (2002)

With relatively little effort, you can design and assemble an investment portfolio
that, because of its wide diversification and minimal expenses, will prove superior to the
most professionally managed accounts. Great intelligence and good luck are not required.
This down-to-earth book lays out in easy-to-understand prose the four essential topics that
every investor must master: the relationship of risk and reward, the history of the market,
the psychology of the investor and the market, and the folly of taking financial advice from

33
investment salespeople. The author of the book pulls back the curtain to reveal what really
goes on in today’s financial industry as the author outlines a simple program for building
wealth while controlling risk. Straightforward in its presentation and generous in its real-
life examples, „The Four Pillars of Investing‟ presents a discussion of:

• The art and science of mixing different asset classes into an effective blend.

• The dangers of actively picking stocks, as opposed to investing in the whole market.

• Behavioural finance and how state of mind can adversely affect decision making.

The first pillar of the book states that when one invests in stocks, bonds or for that
matter real estate or any other security or capital asset, one is mainly rewarded to exposure
of one thing, and that is risk. One can learn just how to measure that risk and explore the
interplay of risk to get investment returns. One is certainly not rewarded for picking the
best performing stocks or any other securities or best financial advisors, says the author,
but the biggest risk of all is failing to diversify properly. It is the behaviour of the portfolio
as a whole and not the assets in it that matters most.

The science of mixing different asset classes into the right blend is called a portfolio
says the author. Pillar two is history of the financial market. A study of previous many
years will at least give investors fighting chance when asset prices become certainly
expensive and risky. An understanding of financial history provides an additional
dimension of expertise. It is important to understand the background of certain securities
and that market movements in order to earn returns. Studying the behaviour of the market
and the past history will help investors to understand how the market functions more
efficiently.

The third pillar is psychology, most it is commonly known as human nature. The
author states in this section the most common behavioural mistakes that investors commit
while investing in the market. Investors tend to get driven away by securities with low pay
off in order to avoid risk but do not see that the investment tends to give much lower returns
than other securities. Some of the common mistakes investors make are that they tend to
become grossly over confident, at times systematically pay too much for certain classes of
stocks, trade too much at great costs, regularly make irrational buy and sell decisions.

34
 Pillar four is business. The author believes that the mutual fund and stock brokers
are just there for the purpose to making money out of the services they provide, while
actually can be dealt with by investors themselves. The author feels that they are just the
money makers and investors tend to incur additional expenses while handing over their
assets to them. He finally states that once an investor learns about these four pillars well
enough, investors will tend to have success from their investments.

Investing is not a destination. Investing is a journey, and along the way are
stockbrokers, journalists, and mutual fund companies whose interests are diametrically
opposed to that of the investor. More relevant today than ever, “The Four Pillars of
Investing” shows one how to determine one’s own financial direction and assemble an
investment program with the sole goal of building long-term wealth for the investor and
his/ her family. The author mainly focuses on how to be aware of the nature of the
investment terrain. The author gives investors the tools the investors need to construct top-
returning portfolios, without the help of a financial advisor, in a relaxed and
nonthreatening manner.

 Personal portfolio management (under project management services)

By Sushant (2019)

A personal portfolio management comprises of the management of all the investments

and securities held by an investor. The procedure of managing all the securities and assets is
very complicated and thus, many big investors take the services of portfolio managers that
assist in managing their portfolios. The personal portfolio managers utilize their skills and
market knowledge and take help of portfolio management soft-wares for managing the
investor‟s portfolio. The planning phase of portfolio management involves planning like any
other business planning where investor has to determine his/her investment objectives and
goals. It helps the investors in providing a clear vision of his goals and set of requirements.
The planning also helps the investors in selecting efficient portfolio investment over others.

The determination of the investment objectives is not restricted to deciding the

amount of profit one would like to make after investments. Investors should also consider
about various other factors such as time and liquidity factors. It is to be noted that,
investors should also consider the amount of risk he/she can bear and willing to take up

35
while investing. There are various possible scenarios like inflation, market economy or
changes in law; that should be taken into consideration during the planning phase. The
investors should realize that the returns obtained may differ from the expected risks and
returns therefore all the factors that can lead to uncertainty should be taken into account.

Once a decision is made on the basis of expected risk & return, time frame,
investment objectives and other factors, other step involves the implementation of selected
strategy. Investors should go for the selected securities and follows the diversification rule
while implementing the investment strategy. The diversification of the securities and
investment in securities helps in minimizing the losses and reduces the risk in times of
financial crisis. To achieve diversification, investors can either select local market or select
even the global markets.

The writer of this article states that investors should keep a constant check on the
market to analysis and evaluating the performance of portfolio in changing conditions of
the dynamic market. As an investor you should make constant modifications in your
portfolio by selling overweight securities and purchasing underweight securities. It is a
challenging task to make all the decisions based on the market fluctuations. With the
passage of time, investor’s experience can grow and he/she can learn managing the
personal portfolio with ease.

 All About Asset Allocation, Second Edition Paperback

By Richard Ferri (June 2010)

The author of the book states, when it comes to investing for the future, there‟s only
one sure bet, that is, Asset Allocation. Asset allocation is the rigorous implementation of an
investment strategy that attempts at balancing the risks involved in a portfolio versus the
returns it gives by adjusting the percentage of each asset in an investment portfolio according
to the investors‟ risk tolerance, goals and the overall investment time frame of the investors.
Richard Ferri, in his book on „All about Asset Allocation, clearly focuses on the given points:

• Implement a smart asset allocation strategy.

• Diversify your investments with stocks, bonds, real estate, and other classes.

36
 • Change your allocation and lock in gains.

Trying to outwit the market is a bad gamble, says the author. Richard Ferri states
that if one is serious about investing for the long run, he/she will have to take a no-
nonsense, business like approach towards the portfolio. “All about Asset Allocation” offers
advice that is both prudent and practical. The author emphasizes on this statement - keep it
simple, diversify, and, above all, keep your expenses low. He empathizes how
diversification will help in enhancing one’s portfolio. The author states that asset
allocation is vital for an investment to gain success and, most importantly, he believes it
works well enough with real people.

 Investment Analysis and Portfolio Management

By Prasanna Chandra (April 2010)

The author, Prasanna Chandra states that the two key aspects of any investment are
time and risk. She also states that as an investor one has a lot of investment avenues to
choose from and that are made available to the investors. For evaluating and investment
avenues, investors must keep in mind certain attributes relating to investment. Investors
should focus and pay heed to the rate of return, the risk involved, marketability of the
investment, tax shield provided by the investment and finally the convenience factor. The
author stresses on these factors and says that while investing in any kind of security
investors should dig into such factors and know what is best and what suits their needs
while making investment decisions.

In her book, the author Prasanna also mentions the various steps involved to manage the
portfolio. Specification of investment objectives and the constraints have to be taken care of.
The right choice of asset mix should be selected that best suits the investors‟ needs based on
various factors such as time horizon, maturity period, safety of principal, etc. She also states
that the right portfolio strategy should be selected in order to enhance one’s portfolio.

Selecting the right set of securities plays an important role in the portfolio
management process, as the securities should be such that suits the investors needs and
does not prove to be a burden on the investor. It is to be noted that, apart from the above
steps involved, the portfolio execution process is essential. The portfolio should be
executed well enough to help investors yield good returns and rewards. Finally, the

37
portfolio revision and evaluation step plays an important role too. The investor should
evaluate the portfolio to have a check on the asset mix and to see if the investments are
shedding good returns.

However, the author also states that to investors are prone to various errors while
managing their investments. In order to enhance one’s portfolio investors can also take
assistance from financial advisors and professionals. Prasanna Chandra also mentions in
this book few qualities that help investors in succeeding in their investments. Contrary
thinking, patience, composure, flexibility to adapt changes, and decisiveness, she stresses,
are some important qualities in order to succeed in the game of investing. Therefore,
investors should keep all these factors in mind while they plan their investments and
decide on the right and apt portfolio that suits their needs.

 By shunning equity investments, you deprive yourself of a legitimate way to

grow your wealth
By Uma Shashikant (March 2019)

The article mainly suggests why one should invest in equity funds, and what are the
benefits invest deprive when they do not invest in equity. The writer is quite equipped by the
fact that not many investors like investing in equity. Some of the investors see investment in
equity as a zero-sum game, and therefore, wasteful. While some even equate it with
gambling, there are some who simply love it, even if they might not understand it well. The
writer believes that mindless trading does not make anyone rich. Shunning equity as a gamble
also does not help, as it shuts one’s wealth from multiplying. Therefore, an ordinary investor
should keep the following things in mind while investing in equity funds.

Firstly, to invest in equity is to invest in the future of a business enterprise. Despite

all pretenses of expertise, no one can really predict and tell in advance which business will
succeed and which will fail. One should like dealing and gain interest in dealing with the
unknown without getting stressed about it. Secondly, there are multiple stories investors
hear about how people buy stock for a pittance and now sit with millions, are very one
sided. It is easy to look track how brilliantly a stock has moved over the years but an actual

38
investor in the stock will exactly know how bumpy the ride is. It is essential to understand
that investors should be aware and have a clear idea about the investments they enter into.

Third thing to keep in mind is that there is no easy way to pick a stock. The ones
who have spent their lives analysing stocks have developed the expertise to spot the
warning signs. They also might not be too sure, but they have experience for guidance.
Yet, investors might know that they could go wrong, and therefore, are usually silent. It is
necessary to understand that one should discard all tips that are dished out free. Fourth, the
decision to buy a stock is a tough one, for sure. There are several listed stocks to choose
from, and no one knows which a multi-bagger will be. In a formal investment set up, the
specific reasons why an investment or stock is bought is written down. The writer says that
this is a good practice to do the above, do that the performance of the stock and investment
is tracked. Buying of an investment must be subject to a discipline and the investor should
know and keep in mind the purpose of buying the stock.

Fifth, an ordinary investor is disadvantaged with respect to access of information

and its analysis. A broking house hires and pays for databases, research, qualified
manpower and tracks stock. A mutual fund is able to hire brokers, apart from in-house
expertise in analysis, research, etc. Individual investors have to rely on public scheme,
available information and their own homework. Investors should be prepared for intensive
homework and research. Sixth, money is not made on single bets.

Successful entrepreneurs who set up world changing businesses are the only exception
to this rule. Most of the investors are not courageous enough to stake all in single business.
All investors invest in many stocks and that is exactly how it should be. Seventh, when
investors are uncertain about the future and one buys based on incomplete current
information and when that does not work out, investors should accept their mistakes and cut
down on losses. Money is made in equity investing not from stock picking but from
recognizing that the investment thesis was wrong.

A diversified portfolio of stock, selected for the potential of the investor but replaced
when it does not work out for the investor will deliver the growth investor is seeking.
Investing in an equity mutual fund is an efficient way to invest in equity. Investing is an
index ETF, is both efficient and cheap. Investing by oneself is thrilling but fraught with

39
mistake as one climbs the learning curve. Investors should choose their pick but do select
equity.

Equity investing offers investors a fair, democratic and efficient opportunity to take
part in the success of a company. One must spend their energy on putting down their
process for participation. Investors should focus on diversifying their portfolio and should
always study the market, either by themselves or through the help and guidance of
financial advisors and professionals. Investors should choose the right mix of investments
but should also choose a portfolio that includes equity investments. The writer stresses on
the statement that shunning away equity investments will not help an investor in growing
their wealth.

 Debt funds will give investors the flexibility to withdraw money at any time.
By Lakshmi Narayanan (February 2019)

Debt funds are the investments that provide fixed income. The writer says that it is
important to plan one’s life post retirement to retain financial independence and for a
comfortable life even when one does not earn an income through their job. It is essential and
good to have clarity on how much money one needs and requires at different points in time,
once one reaches retirement or is living their retired life. Just like the previous article
mentioned about investment in equity funds, the writer of this article also believes that as
much as debt funds are beneficial to the investor at their retirement age, equity funds should
also be a part of one‟s portfolio.

Debt funds are very flexible and they provide investors with the benefit of
withdrawal at any point of time. This is mainly because debt funds are open ended funds
and have no exit load on them. But the writer says that one should also consider parking
20% - 25% of their money in equity mutual funds and the rest in debt funds. Returns on
equity mutual funds can definitely be uncertain due to volatility, but considering a time
horizon of investing for a longer period, equities is one of the best options to invest in, in
order to bet the inflation rate and will help investors in growing their money.

Investors while considering investing in equity should set aside money to invest in
debt as well. If 20% - 25% of money is invested in equity the balance 75% - 80% should

40
be invested in debt funds. By doing this, investors can be assured of a fixed income when
then invest in debt funds, even if they do not benefit from their equity investments. But
one can surely benefit from their equity investments, if they are well versed with their
market and do not tend to make hasty decisions.

Therefore, the overall portfolio of any investor should include a mix of equity
investments as well as debt investments, while a small sum of amount can be parked in
fixed deposits as an emergency corpus. The author believes that an investor can benefit
from their portfolio when they have the right mix of equity and debt funds in the
investment portfolio of the investors. It is not always the portfolio that works out, but it is
the investor that has to make the portfolio work for him/her but updating their portfolio
depending on what the market conditions demand.

 Construction and Management of one’s investment portfolio in 4 simple steps.

By Rohan Chinchwadkar (November 2018)

Managing a complex investment portfolio can be challenging for individual investors,

this is especially if financial planning is not done in a systematic manner. Many a times,
investors focus too much on unnecessary questions and end up with a portfolio that does not
satisfy the important financial needs of the investors. Firstly, the investor should be aware of
the risk ability he/she has. For this purpose, the investor must first construct a policy
statement, says the writer. The policy statement specifies the amount of risk investors are
willing to take. A well-defined policy statement also helps investors to set a benchmark for
their portfolio evaluation in the future.

Second thing to keep in mind is the investment strategy that should be used while
investing. It includes assessing the external financial and economic condition and
developing a point of view about the future. The above assessment of external financial
and economic conditions along with the policy statement constructed will together help the
investor to plan and strategize for the investment. Since the market conditions undergo and
witness significant changes over a period of time, the market needs to be monitored and
studied and similarly appropriate changes have to be made in the portfolio to reflect future

41
expectations. The investment strategy stage also helps the investors in setting realistic
investment goals and return expectations.

This third step of investment portfolio management according to the writer involves
the construction of portfolio by implementing the investment strategy and by deciding how
to allocate capital and money of the investors across geographies, asset classes (like equity,
debt, real estate and gold) and securities (stock, bonds, etc.). The main portfolio
construction is to meet the needs of the investor by taking the minimum possible risk.
Different approaches can be used by investors and portfolio managers to construct
portfolios. The writer states that investors can focus on the theory of only focusing on risk
and return characteristics of various securities. The approach recommends a highly
diversified portfolio because it believes that the markets are efficient and it is difficult for
investors to find and select a „winner‟ stock.

However, for emerging markets those have significant market inefficiencies,

involves the processes of macroeconomic analysis, industry analysis and company analysis
(along with stock valuation). Continuous monitoring and evaluation of investor needs and
market conditions are needed one a portfolio is constructed, so that appropriate changes
can be made in the portfolio depending upon the need of the investors. It is also important
to evaluate portfolio performance on a risk adjusted basis and compare it with suitable
market benchmark.

 Tips for Diversifying one’s Portfolio

By Peter Breen (February 2019)

When the market is booming, it seems almost impossible to sell a stock from any
amount less than the price at which one has bought it. But because investors are not aware
about and cannot be sure of what the market can do at any moment, the writer feels that
investors at times tend to forget the importance of a well-diversified portfolio in any
market condition. Diversification is not a new concept, and investors‟ should keep in mind
that investing is an art form, and in order to not get a knee-jerk reaction, it is necessary to
put to practice a disciplined investing tactic with a diversified portfolio before it becomes a
necessity.

In order to enhance one’s portfolio it is necessary to spread the wealth of the

investor into various investments and in more than one stock or sector. Diversify in such a

42
way so as to hold about 20 – 30 different investments, says the writer. But at the same
time, it is to be considered that an investor should allocate those assets and securities to
his/her portfolio that has the level of risk tolerance that the investor is willing to take. It is
essential to build the portfolio and make the necessary changes in the portfolio as and
when time permits and as and when required. Investors should be updated with market
conditions and should re-balance their portfolio as and when required. Investing can and
should be fun, says the writer. The bottom line is that investing can be educational,
informative and rewarding. By taking a disciplined approach and using diversification,
investors might find investing rewarding even in not so good times.

 Debt fund or equity funds? The right answer may be ‘both’

By Sanjiv Singhal (November 2014)

Investing can be a task for some while it might turn out to be adventurous for some
investors. But it is important to know and have clarity in the kind of investment one picks.
There is always a fight about which investment is better, debt or equity, or which will offer
better returns to the investors. But before deciding this, investors should consider few
aspects that will lead them onto deciding and choosing the right set of investments. The
main step is to understand the mere difference between the two investments. Debt
instruments are considered to have lower risk and investment in debt instruments provides
fixed income yield, while equity on the other hand, and is an essential asset class for long
term growth of savings with returns that beat inflation. The risk involved in equity it more
than that of debt, which is very obvious become of the investment being very volatile.

The objective for the investment should be known to decide between equity and debt
instruments. The objective could be income generation or wealth creation. For those
investors that are looking or wealth creation should opt for equity while the ones that
desire income generation should opt for debt funds says the writer of the article. Well, it
should be taken into account that investment duration should always kept in mind while
investing in debt and equity funds. Debt funds are suitable for a short period of time, while
for a longer duration, say over five years, equity is recommendable. The risk factor is most
important while investing. The investors should know their risk tolerance and depending

43
on that select the investments. If investors are not very keen on taking up risks, investors
should definitely opt for debt funds as there is lesser risk involved in debt investments in
comparison to equity investments. Equity investments are suitable for the investors who
like to invest in risky situations. Therefore, the decision to make is a complex one
involving many parameters. Investors should diligently do their research and analyze fund
performance before investing. The ideal deal would be to invest in both so as to earn fixed
income from debt funds as well as an extra source of income from equity investments.

 All about evaluating Risk Tolerance and Risk Appetite.

By Bankbazaar (September 2013)

Although risk plays an important part in taking investment decisions, not many
people are aware about how to determine their risk tolerance. Risk appetite means the
readiness to take the risk and risk tolerance implies the ability to do so. While risk appetite
differs from person to person, risk tolerance is usually estimated keeping in mind the
present financial circumstances and other factors of the individual. Age plays a major
while investing, especially the risk factor. An individual’s risk factor generally reduces
with age. As one nears retirement, the investor would like to secure his/ her retirement
corpus and would like to reduce the volatility to the portfolio. On the other hand, a
younger person will have a higher risk appetite to invest in equities and higher risk
investments, as the investor has sufficient time to recoup his losses if need be.

This implies that the investor has a higher risk appetite in his early age as compared
to what the investor might have when the investor nears retirement. However, not in every
case risk and age of the investor are correlated. Risk appetite might be low for certain
investors throughout their lifetime as well. If an investor has more experience in investing
in a particular class of investments, the investor is like to have a higher risk appetite for
such investments. This is because of the comfort level which sets in with repeated buying.
Having a deep knowledge and understanding regarding schemes and investments, also
plays an important role on the investor’s risk appetite. This will increase the investors‟
awareness, which in turn increases the investors‟ risk appetite.

44
 If investors are burdened with any short-term goals for which investors have not
planned the financing, then investors will not be able to invest much, considering most of
what they are earning is spent on such goals. In such a case, the risk tolerance is said to be
lower than a scenario where the investors have their goals planned and there is no
hesitation in investments. Nearness to goals also determines risk tolerance. If the investors’
goals are long term in nature, one can expose themselves to higher risk investments, than if
the goals are for the short term. Few other factors such as the income level, amount of
expenses incurred by the investor, availability of liquid cash, etc. plays an important role in
determining an investor’s risk appetite and risk tolerance. In order to make wise decisions
while investing, investors should determine their risk appetite and risk tolerance before
venturing into any investments.

45
 Chapter Four: Data Analysis and Interpretation

The concept of portfolio management was made known to the world in the early 1950s,
however in the 1930s there was a time when people had portfolios, but their perception of a
portfolio was very different than what it is now. Firstly, it is necessary to understand why
portfolio management is essential. If an investor does not have more than one security then it
cannot be named as a portfolio. The risk involved in holding on to just one security is more in
comparison to having more than two to three securities lined up in a portfolio. This is because
if that one security, which one has invested in, does not provide good returns or leads to huge
losses for the investor, the investor will not have any other security to back up that loss. But if
the investor invests in more than two securities, in case one investment does not give the
desired returns, the investor will still not make huge losses because the investor will receive
income from the other investments.

Therefore, it is necessary to have a portfolio of investments, and more importantly, it

is essential to manage the portfolio correctly, in order to maximize returns while aiming at
minimizing risks. For better understanding of the study, a survey was conducted to
understand what the preferences of the investors in Mumbai city are. The survey has
multiple questions lined up in order to enhance the study, from the choice of investment
avenues to whether investors are risk takers or non-risk takers. The survey also shows the
various factors investors take into account while investing, what are the various sources
that influence an investor’s decision, what difficulties do investors‟ face while investing,
and many more questions related to portfolio management and investment decisions have
been taken into account while conducting the survey.

In order to understand the research better, the data collected has been explained
graphically. The figures will explain diagrammatically how different investors at different
ages manage their portfolio, and what various factors do they take into consideration while
investors. Following are the various graphical representations for better understanding of
the study.

46
 1. Which investment avenues do you prefer to invest in?
 Investors have various securities and assets lined up for them to choose from
while investing. A lot of choices are made available such as equity shares, mutual
funds, debt funds, etc.

18 16
16 14
14 12
12
10 8
8 7
6
6 4 4
4 3
2 2 2
2 1 1
0 0 0 0
0
Equity shares Debt and mutual funds non others- fixed LIC Policy
bonds marketable deposits
securities
Investment avenues 25-35 36-45 46-55

Figure 4.1

Interpretation:

The above figure shows that a lot of investors from all the age groups prefer to invest in
mutual funds as investment in mutual funds, as the money invested is handled by
professionals. Out of 82 respondents, 12 investors from the age group of 25-35 years
invest in equity while 6 from the age group of 46-55 invest in equity. About 7 investors in
the age group of 46 – 55 years invest in fixed deposits, while investors in the age group of
25-35 years have no investments in fixed deposits. There are many other investors, who
invest in some other securities as well, such as debts and bonds, where the income is fixed,
while some invest in other securities and make other investments such as non-marketable
securities like postal savings, bank deposits, life insurance policies, etc. Therefore, it is
seen through this bar diagram that the younger generation of investors mostly invests in
equity shares while the older generation of investors prefers to invest in investments
providing fixed returns.

47
 2. For how long have you been investing?
 While making investments, investors need to make a choice as to for what time
period do they want to invest. It depends on various factors such as urgency of
money, amount of funds available, etc. While few investors start investing at an
early age, few begin late. The below figure shows the period from when the
respondents have begun investing.

Time period of
investment undertaken
13

26

Less than one year

1 - 3 years
3-5 years
More than 5 years
27

16

Figure 4.2

Interpretation:

The above data shows that 13 respondents out of the 82 respondents invest for less than a
year, this maybe because they want to earn quick profits. Out of 82 respondents about 27
respondents invest between 1-3 years. While 16 respondents say that they invest for 3-5
years. The remaining 26 respondents invest for more than 5 years. This maybe because
investing for a longer period of time could bring stability in the income. Also, when
investors invest for a longer period of time, they are more likely to weather the low market
periods. Also, once the investors invest in the market for a longer period, they learn to
adapt through the market changes and understand the market better.

48
 3. How much percentage of your income do you set aside for investing?
 Investors must set a right proportion of expenditure and saving and investment. The
figure below shows the percentage of income that the investors (respondents) set
aside for their investments.

Percentage of income set aside for investing

3.6
19.5

29.3
Less than 10%
10% - 20%
20% - 40%
More than 40%

47.6

Figure 4.3

Interpretation:

The above pie diagram shows the bifurcation of the percentage of income the investors set
aside for their investments. About 19.5% investors save less than 10% of their income for
investing, while 47.6% respondents have stated that they set aside 10% - 20% of their
income for investments. 29.3% investors keep 20% - 40% of their income for the sake of
investments. Finally, 3.6% respondents save more than 40% of their income for
investments. They above data show that investors mainly tend to save about 10% - 20% of
their income for making investments. The decision regarding percentage of investing
depends upon the cash flows and budget. Mainly, the investment percentage may also
depend upon the future financial goals and the current financial situations of the investors;
therefore, the percentage of income set aside depend on various factors, however, 10% -
15% of income saving for investment is recommendable.

49
 4. What factors do you consider before investing?
 It is very necessary for the investors to have a clarity while investing, regarding,
factors that they give priority to while investing.

Factors to be considered while investing

Safety of pirncipal 46 (56.1%)

Maturity period 25 (30.5%)

High returns 48 (58.6%)

Series 1
Low risk 25 (31.7%)

All of the above 1 (1.2%)

0 10 20 30 40 50 60

Figure 4.4

Interpretation:

The above data shows a mix of few factors that the investors consider/ keep in mind before
investing. About 56.1% respondents say that for them safety of principal is very essential,
that is, they desire the safety of their principal amount invested, more than the profit or
loss that they will incur. 30.5% respondents have stated that the maturity period plays in
important role while investing. This could be probably because, few investors would want
quick rewards, while few might want their money to grow and therefore, would want to
invest for a longer period. „High returns‟ is one such factor that has been given a lot of
importance. About 58.6% investors feel that high returns are something to be considered
before investing. By this the investors mean that before investing, it is important to check
and learn whether the investment will yield a good return to the investor or not. Risk is one
factor that most investors try to avoid. 31.7% investors expect the investment to be riskless
or less risky. The investors feel that it is important to consider the risk factor while
investing. Even though the investment might not give high returns, the risk factor should
be low, is what few investors feel. 1.2% investors feel that all the above factors, which is,
safety of principal, maturity period, high returns and low risk, should be taken into
consideration while investing.

50
 5. Do you look up for monthly returns while investing?

 Many investments provide updates on monthly returns of the investors. Some

investors might want to have a check on their monthly returns, as they might want
to know whether their investments are giving good rewards and where is the
money invested being utilized.

Monthly investments pattern of investors (in%)

34.10%

Yes

No

65.90%

Figure 4.5

Interpretation:

The data above shows a pie diagram that shows the investors decisions on the need for
monthly returns. 34.10% investors look up for monthly returns while investing. This could
be probably because the investors might want to have a check on the growth of their
money invested. Also, they might want to know whether the money invested is being
utilized in the most efficient manner or not. On the other hand, 65.90% investors, which
means majority of them do not given importance to monthly returns. While investing they
do not look up for monthly returns or rewards.

51
 6. What are the sources that influence your decision to invest?

 There are various factors and sources that can influence the decision of an investor
while they are investing. Some might invest out of their personal knowledge, while
few would take recommendations from friends and relatives. Many investors also
look up to financial advisors and agents, while few works it out depending on
advertisements, etc.

Decisions on investment

Personal knowledge 48 (58.5%)

Advertisements 7 (8.5%)

Series 1
Agents and financial advisors 53 (64.6%)

Friends and relatives 35 (42.7%)

0 10 20 30 40 50 60

Figure 4.6

Interpretation:

A lot of sources can influence an investor’s investing decision. About 58.5% investors
invest out of their personal knowledge regarding the market while 8.5% investors look up
to advertisements, etc. while investing. 64.6% investors say that their decision is
influenced by financial advisors and agents. They depend on financial advisors to enhance
their portfolio, maybe due to lack of knowledge about the markets. Few investors, that is,
about 42.7% investors say that their investment decisions are influenced by their friends
and relatives. Investors tend to look up to others for their investment due to lack of
knowledge regarding the market and its fluctuations, or maybe because they feel it is safer
to rely on others decisions that their own. While some feel that their judgment is good
enough to manage their portfolio and their investments.

52
 7. What are your objectives/ goals while investing?

Every investor has certain aims and goals while investing. Generally, investors invest for the
purpose of retirement savings, while few invest to improve their standard of living and beat
the inflation, while others invest for growth of their money and many other factors.

Investing goals of the investors

Growth of money 60 (73.2% )

Emergency fund 15 (18.3% )

Save for retirement 41 (50%)

Earn higher returns 36 (43.9 %)

Series 1

Reduce taxable income 18 (22 %)

Keep up with inflation 11 (13.4%)

Mix of above all 1 (1.2%)

0 10 20 30 40 50 60 70

Figure 4.7

Interpretation:

The above data shows that multiple factors that lead people to invest. 73.2% of investors
believe that they invest in order to grow their money, for various reasons, such as buying a
house, and achieving other goals, etc. about 18.3% investors invest with a view and aim of
emergency fund, in case of some uncertainty. A lot of people, that is, 50% of the
respondents have stated that their main aim of investing is to save for the retirement, in
order to have a stable life even after one retires. 43.9% investors aim at earning higher
returns, while 22% invest with an aim of reducing their taxable income, as there are certain
exemptions on certain investments, which benefits the investors. Due to the ever-
increasing prices of commodities and inflation, about 13.4% people invest with a goal to
keep up with the inflation rate. 1.2% investors invest keeping all these factors in mind.

53
 8. If you have an option to invest in either equity or debt, which investment
option would you select?

 A lot of people find it very difficult to invest in equity due to the risk involved,
volatility of the market, etc. Investing in debt is safer than equity, but the returns
are comparatively lower. Therefore, it is a tough decision to choose between the
two. The ones who are willing to take risk in order to earn good rewards will invest
in equity, while those who are ready to let go of the benefit of getting more returns
rather than taking risk, will invest in debt investments.

Investment choices
30 28

25 24

20
25 - 35
15 13
36 - 45
9 46 - 55
10
7

5
1
0
Equity investments Debt investments

Figure 4.8

Interpretation:

The above diagram shows that in every case, that is, in every age group, the investors have
stated that if given a choice they would want to invest in equity in comparison to that of
debt investments. One possible reason could be that, investing in equity, undoubtedly, is
very risky in comparison to debt, but the returns better off than that of debt investments.
Also, if investors keep a track on the market conditions and invest at the right time, then,
in such a case, investing in equity would be quite profitable for the investors.

54
 9. Do you feel investing in mutual funds is better than investing in stock
markets?

Mutual funds means investing small amount of money, that is handled by professionals
and many investors pool in their money, and the mutual fund company invests the lump-
sum in the stock market. Therefore, people find it easier to invest in mutual funds, than
directly in the stock market, as the money invested is handled by professionals.

Reviews in percentage

32.90%
Yes
No
51.20%
Maybe

15.90%

Figure 4.9

Interpretation:

The above pie diagram shows that various responses of investors regarding which invest
are better, that is, mutual funds or stock market. 51.20% of investors, which is majority of
the investors, believe that investing in mutual funds is better than investing directly into
the stock market. 15.90% say that they feel investing directly in the stock market is better;
maybe due to the additional expenses that might incur due to professional assistance, etc.
32.90% investors feel that it is sometimes mutual fund investments are better than
investing directly into the stock market, while sometimes it is better to invest in the stock
market directly, therefore such investors adapt to the changing situations.

55
 10. Do you feel it is important to take the advice/ guidance of financial advisors in
order to enhance one’s portfolio?
 Financial advisors are those who help investors and the general public in managing
their money and their finances. With the help of financial advisors and professional
investors can manage and enhance their portfolio.

In percentage

8.50%

Yes No

91.50%

Figure 4.10

Interpretation:

In the above pie chart, it is seen that a huge percentage of investors believe that it is always
advisable and feasible to take the assistance and guidance of financial advisors and
professionals while investing. 91.50% investors have stated that they feel it is better to take
the advice and guidance of professional advisors, as professional and financial advisors are
very well versed with the market conditions and market fluctuations and therefore many
investors prefer to rely on them. While 8.50% investors have stated that they do not feel it
necessary to take the advice of financial advisors. They might have adequate knowledge
and understanding about the market or might not want to spend on professional charges,
etc.

56
 11. From the options given below, which according to you is an ideal portfolio?

 Designing a portfolio is very essential, as the portfolio should consist of the right
mix of assets that suits the investors‟ choice and preference. Many investors take
the assistance of financial advisors and professionals to enhance and manage their
portfolios.

Different portfolio combinations (in %)

6.20% 2.30%

12.20% Less of equity, more of debt

Less of debt, more of equity

22%
Equity and debt in the same ratio
57.30%
Only equity

Only debt

Figure 4.11

Interpretation:

Selecting the right asset mix that suits the investor’s needs is very important. The above
diagram shows the choice of investment portfolio invest want. 12.20% prefer their
portfolio to have less of equity investments and more of debt investments, due to the high-
risk level involved in equity. These investors might want to take lesser risk. On the other
hand, 22% investors feel that an ideal portfolio is that which has less of debt and more of
equity. These investors are the ones that are willing to take risk to a certain extent. 57.30%
of the investors believe that an ideal portfolio consists of equal amount of equity funds and
debt funds. 6.20% investors say that an ideal portfolio must only consist of equity funds.
These investors are the actual risk takers and they are willing to take risk to earn high
returns. The remaining 2.30% investors feel it is safe an ideal to have only debt funds in a
portfolio. These investors are the ones who are not keen on taking risks while investing.

57
 12. What are the inconveniences and discomforts, investors face while investing?

 Every investor at some point of time faces certain discomforts and difficulties
while investing, such as poor services, low returns, lack of awareness, etc.

Incoveniences and discomforts of investors

Less awareness 30 (36.6%)

Low returns 36 (43.9%

)

Poor service 11(13.4%)

Series 1
Inconvenient to operate 12 (14.6%)

Liquidity 14 (17.1%)

None 13 (15.9%)

0 5 10 15 20 25 30 35 40

Figure 4.12
Interpretation:

The above diagram shows the data regarding the inconveniences and difficulties investors
face while investing. 36.6% investors state that they find it difficult while investing due to
lack of awareness; this might be from the investor end or if the company does not disclose
all necessary information that should be known to the investors. 43.9% investors say that
low returns is something that causes inconvenience to the while investing. 13.4% investors
feel that the poor services cause them discomfort. Inconvenient to operate is another
discomfort that about 14.6% investors face. 17.1% investors state that liquidity is another
factor that causes discomfort. About 15.9% investors do not witness any discomfort and
difficulties while investing.

58
 13. Do you like to invest in risky securities, that is, are you a risk taker when it
comes to investing?

 Not every investor is a risk taker. Many investors find it difficult to invest in risk
securities, while some investors are the ones who have the ability to take risk.

Risk ability
20 19

18
16
16

14

12
10 yes
10 9
8 8 no
8 sometimes
6 5 5

4
2
2

0
25 - 35 36 - 45 46 - 55

Figure 4.13

Interpretation:

The younger generation between the age group of 25 – 35 years, as it is seen in the
diagram, is mostly willing to take the risk and invest in risky securities if needed, in order
to earn higher returns. Even the age group between 36 – 45 years has stated that they
would sometimes take up the risk to invest in risky securities, while some have stated that
they would not invest in risky securities. They older generation, that is, between the age of
46 – 55 years, state that they would not want to invest in risky securities. The older
generation shows the highest number of non-risk takers, this may tend to be because the
older generation has lesser disposal of income and lesser time to invest in, in comparison
to the younger generation of investors.

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 14. According to you, which security is more risky to invest in?
 Investment decisions differ from one investor to another. Every investor will find a
certain investment risky in comparison to the other. The figure shows the various
securities investors find risky while investing.

Risky securities
1.20%

35.40%
48.80% Equity shares
Mutual funds
Real estate
14.60% Futures

Figure 4.14

Interpretation:

About 48.80% investors find equity shares extremely risky; this could be because investing
in equity investments will not always give investors the desired results. There is always a
possibility of default or loss involved in equity investments. 14.60% investors believe that
mutual funds are risky to invest in. One reason could be that mutual funds are managed by
other professionals and there could be a possibility of frauds or sometimes investors might
not know where their money is being utilized; also, a lot of managing expenses are
involved in it. A lot of investors have stated that real estate investments are risky, and this
could be true as huge amount of money is invested in real estate, and due to falling
markets, investors can make huge losses. 1.20% investors have said that they find futures
very risky, as the price is not certain and investors can make losses due to fluctuation in
rates.

60
 15. Are you happy/ satisfied with the investments you have made?

 Not always investors are satisfied with their investments. Investors may receive
fruitful returns sometimes, while some investors might incur losses while investing.

Investment satisfaction

91.50%

Yes No

8.50%

Figure 4.15

Interpretation:

The above pie chart shows that 91.50% of investors are satisfied with the investments they
have made. While 8.50% investors have also stated that are not satisfied with the
investments they have made. Investors might not be satisfied with their investments
because of low returns that the investment gives the investors. There could be possibility
where certain investors might not get any attractive investment schemes that catch their
attention and might infuse them to invest. Another important factor could be the risk
involved. Not all investors are risk-takers but might enter into risky investments in order to
earn higher returns. Therefore, it is necessary to understand that investing can be easy
provided it is done with clarity and with an aim to achieve future needs.

Investors should always keep in mind that while investing it is essential to have certain
knowledge about the market. A proper research if possible should be done in order to benefit

61
from the investments. The above diagrams show various responses of the investors. It is seen
that a lot of investors have learnt the importance of investing and a lot of young minds have
entered into the market for making investments in order to achieve their aims and goals. It is
always said that is it better to start investing at an early age in order to benefit from their
investments in the long run and to assure a good and independent financial life after
retirement. But it is never too late to begin investing even at a comparatively older age.
Because investing will always help investors to grow their money and earn more revenue
than they usually earn, provided the investments are done with utmost care and market
understanding either by the investor himself or through the guidance and assistance of
financial advisors and professionals.

From the data acquired above, it is seen that most investors among all the three age
groups have selected mutual fund investment as the most preferred investment avenues
and that their portfolio mostly consists of mutual funds with a mix of other securities and
assets. One reason could be that investors invest through mutual funds because they are
aware that mutual funds‟ investments are handled by professionals and the money pooled
in by multiple investors is invested in securities depending upon the choice of the
investors. Therefore, the investors do not need to always consult any professional to
manage their investments in mutual funds because it is indirectly managed by
professionals itself, that is the mutual fund company. Also, investors might hesitate and
not so persistent to invest into the market directly.

The data also shows that the older generation invests a lot in fixed income
investments and debt funds. The older generation invests in securities that are not very
risky or basically risk free, mainly the ones that assure investors a fixed or stable return on
their investments. They are the ones who do not like to invest in equity funds but if given a
choice would surely love to invest in equity funds due to the benefits of high returns, etc.
while keeping the risk factor aside. It is important to note that the older generation of
investors has stated that they, if given a choice, would invest in equity investments,
however, in comparison to the younger generation of investors, more number of older
generation of investors stated that they would prefer to invest in debt funds.

The investors between the age group of 25 years to 35 years on the other hand, are very
energetic with their investment decisions and they have certainly stated that they prefer to
invest in equity investments. The younger generation of investors mostly invests in equity

62
investments and comparatively lesser investments in fixed income investments. The
investment pattern of the younger generation of investors differs from that of the older
generation. They are the ones who like to invest in risky securities and like to invest less in
debt comparatively. This could be because equity investments provide more returns to the
investors if the investor invests into the market at the right time by studying the market well.

There is always a possibility of an emerging loss from equity investments as well.

But if the investor does his study well, then the investor could avoid the loss or try to
mitigate the loss to a certain extent. The data clear shows that the younger generation of
investors is more open to taking risk while investing. They are the ones who invest in more
of equity related investments in comparison to debt funds and fixed income instruments.
Through the changing market conditions and ever-increasing competition it is seen that in
comparison to the good old times, in the recent years a lot of young investors have
ventured into the market and begun investing. This could be because the younger
generation is more competent and adventurous; they have fresh minds and are up for
looking up to new opportunities that come their way. They might have certain financial
goals to achieve and might aim at making faster and more money.

On the other hand, the older generations, as seen through the data obtained about,
are more likely to invest in fixed income investment. They are nearing their retirement age
and have lesser disposable income at their end and feel the need to secure that income and
hence they tend to invest in securities that offer fixed income to them rather than
investments that might lead them to incur losses. Though the older generation has an upper
hand when it comes to experience, then still fall back in comparison to the lower
generation when it comes to the availability and time horizon of investing over the years.

However, the older generation has stated that few of the investors do invest in equity
related schemes. And investors of all the age groups have said that taking the guidance and
advice of financial advisors is very essential. One probable reason could be that investors are
very engrossed in their work life and personal life and hence do not get the time to study the
market well enough and thus do not might spending a little more on financial advisors and
professionals who guide them in their investing decisions rather than incurring losses.

Financial advisors guide the investors in their investing decisions; however few
investors have stated that they do not feel the need to seek guidance from professionals and
financial advisors. Investors might have certain knowledge about the market, or some

63
investors might invest in schemes that do not really require the guidance of financial
advisors, for example, fixed deposits, etc. Therefore, it is necessary to understand that
investors that usually invest in the market do feel the need to take the guidance of
professionals. Also, it is seen that a lot of investors invest in mutual funds.

This trend is seen among all age groups. From the above data it can be interpreted
that investors mostly feel that it is better to invest in mutual funds than directly into the
stock market. Though mutual funds have various schemes but it can be summed up that
those investors partially fear to invest directly into the market. People are very much aware
that mutual funds are handled and managed by professionals and therefore investors feel
more secured while investing through a mutual fund company than directly into the stock
market. Also, the company provides investors with the choice of investment schemes they
want to opt for. In such a way investor get a sense of security and find it easier to invest in
such a way.

Though investing in equity and debt and in mutual funds ultimately means investing
into the stock market, investors invest in mutual funds for another reason. In mutual funds,
the company invests the money that is pooled in by multiple investors and hence investors
get an opportunity to start investing from a small amount of money. However, the
respondents have said that they invest in more than one security. They prefer keeping a
portfolio that has mixed securities. The respondents have also stated that maximum
number of investors prefer to have a portfolio that includes debt as well as equity
investments. Respondents have stated that they mostly prefer portfolios that consists a mix
of debt and equity.

Some prefer less of equity, and more of debt. This could be because investors are not
so open to taking risks. They are willing to take up risk to a certain level but having more of
debt funds in the portfolio will help investors get their share of fixed income from debt funds.
On the other hand, few respondents prefer having more of equity funds and less of debt
funds. Such investors are the ones who like to take up risk and thus invest in more risky
securities. But they also keep some amount of reserves for debt funds to incur fixed income
from debt funds as well.

There are few investors who only prefer a portfolio having equity investments. They
are the one who like to take maximum amount of risk and like to earn higher rewards from
their equity investments. On the other hand, there are also few investors who prefer a

64
simple portfolio that just contains debt funds in it. These kinds of investors might not be
very keen on investing in equity funds and risky securities even though the payoffs might
be high. They are the ones who give more importance to and prioritize the risk factor while
investing and do not consider the high returns factor. They like to play safe and do not
indulge in risky securities.

The risk factor plays a very important role in any investor’s investing life. From the
few studies done from other articles and papers it is seen that the level of risk appetite and
risk tolerance not only depends on the individual’s age but also on some other factors such
as the financial goals of the investor, his/her knowledge regarding the market, the income
earned and expenses incurred, etc. But at the end of the day, it is seen that the risk appetite
of investors reduces as the age of the investor increases. This could be mainly because, as
stated before, the investors as they near their retirement age, have lesser disposable
income. And therefore, the older generation investors prefer investments that offer fixed
income to the investor from the investment, but at the same time involves minimum risk
factor.

Every investor seeking return, whether for retirement, further studies, preservation of
capital or income generation – should really take the time to get to know and understand their
risk preference, before they invest a cent. Once you fully understand how you view risk, you
will know where and how much to invest and what return to expect. It will also enable you to
manage your future expectations and expenditure. Understanding the risk appetite and risk-
taking attitude of a person is the key to successful financial planning. If the risk appetite and
objectives are clearly established and every goal that matters is carefully constructed, the
investment process has clarity. Risk is the chance that an investment’s actual return will be
different than expected. Risk includes the possibility of losing some or all of the original
investment. An investor’s willingness to take risk is often different across individuals and
time horizons.

In determining your risk preference, you need to carefully consider factors such as
investment time horizon, type of investment vehicle, required market participation and
future cash flow requirements. The goal or target set by the investor also plays a crucial
role. Finally, investor’s risk preference will be influenced by the type of investor they are.
Broadly speaking, investors can be divided into those seeking to grow wealth (mostly
preretirement individuals) and those seeking to preserve wealth (mostly retired). Knowing

65
your personal risk appetite is an important factor in determining what role risk will play in
your investment strategy. Once you have considered it, you will be in a better position to
develop and commit to your long-term financial plan.

From the study, it can be interpreted that overall investors prefer portfolios that have
a blend of both of equity and debt investments. The investors mainly risk but it is seen
mostly among the younger generation. The older generation does not find it entertaining to
invest in risky securities. Investors mostly seem to be satisfied with their investors. This
could be because investors maybe mainly invest in securities that suit their preference and
financial needs. This shows that investors might be very well versed with the types of
investment they want to invest in. They might be well versed because they have studied
the market well enough, or they might take the guidance of financial advisors and
professionals that guide the investors to invest in the right securities and design a good
portfolio that consists of investments that fits the need and suitability of the investors.

Investors tend to feel satisfied because the investment might be doing well and the
investors might have the right mix of securities. 91% investors have stated that they are
satisfied with their investments; however the remaining 9% investors have mentioned that
they are not satisfied with their investments. One simple reason could be that the investors are
not satisfied with the returns the returns the investments provide them. Investors might not
get the returns they expect from their investments, is one reason, but another reason could be
that investors have to take a lot risk while investing and the risk they might have to take
might exceed their risk appetite, therefore making them unhappy with their investments.
Investments might not suit the investors‟ financial needs; therefore investors should choose
such investments that suit their financial needs and goals.

66
 Chapter Five: Conclusion and Findings

The study and survey of portfolio management of individual investors was conducted in
the city of Mumbai. The findings from the survey and data collected have been presented
in this chapter. It is seen than a variety of investment avenues have been covered including
shares, debentures, bonds, government securities, insurance policies, mutual funds, various
types of fixed deposits, post office saving schemes, gold/silver and real estate. The main
attempt of the study is to understand and learn the portfolio management ideologies of
individual investors and their investment preferences for various investment avenues.

The study of individual investors‟ preferences for investment avenues and their
ideology of designing a portfolio of their choices were conducted for the city of Mumbai,
as the individual investors‟ share is overwhelmingly large in the country’s savings. The
main purpose of the study was to know objectively the nature, scope, and competitive
superiority and effectiveness of different types of investment avenues and to examine as to
how investors behave while investing their hard-earned money through these instruments
in the present investment climate and how the investors create their portfolio.

A variety of investment avenues have been covered including shares, debentures,

bonds, government securities, insurance policies, mutual funds, various types of fixed
deposits, post office saving schemes, gold/silver and other precious securities, and real
estate for the purpose. A broad finding and conclusions of the study together with
suggestions as remedial measures to overcome the existing deficiencies are presented in
this chapter.

5.1 Findings:
The study on portfolio management of individual investors was conducted with the
help of a questionnaire. The study was conducted with the help of primary data which was
collected from the respondents with the help of the questionnaire. It is important to study
the data collected in order to come to a conclusion. The detailed data analysis was
conducted and the followings findings were drawn:

67
1. It was found that the investors are aware of the various investment avenues made
available to them. The investors mainly investment in more than one securities and
asset class, which indicates that the investors were aware about the importance of
diversifying their portfolios.
2. The survey mainly showed that a lot of investors from all the age groups, that is, 25
– 35 years, 36 – 45 years and 46 – 55 years, mainly invest in mutual funds, and not
directly into the stock market.
3. The data also shows that about 91.50% of the investors believe that it is important
to take the guidance and advice of financial advisors and professionals. While
8.50% feel it is not that important and necessary to take their guidance.
4. It is found that if given a choice investors would invest in investments that are
dealing with equity instruments than in debt investments. This trend is seen among
all age groups of investors.
5. From the data collected, it is found that about 58.5% investors say that their
investment decisions depend on their personal knowledge about the market, while
8.5% say that advertisements influence their investment decisions, and 64.6%
investors have stated that financial advisors and professionals influence their
investment decisions, while 42.7% investors have stated that their friends and
relatives play an important role in their investment decisions.
6. It is also found that investors set aside some percentage of their income for their
investments. About 19.5% investors set aside less than 10% of their income for
investing, while 47.6% investors have stated that they set aside 10% - 20% of their
income for investing. About 29.3% investors save 20% - 40% if their income,
while 3.6% investors set aside more than 40% of their income for investing.
7. Through the data obtained, it was also found that investors invest good percentage
of their income for the purpose of investing.
8. The data also found that investors invest for various reasons, while the main
reasons for investing were either for growth of their money or mainly for saving for
their retirement. 73.2% invest for growth of their money, while 50% invest for the
purpose of saving for their retirement life.
9. Apart from the above factors, it was also found that 43.9% investors invest in order
to earn high returns, 18.3% for maintaining an emergency fund, while 22% invest
for the purpose of obtaining tax benefit on their taxable income.
Also 13.4% investors have stated that they invest for beating the inflation.

68
10 It was also found that investors consider a lot of factors before investing. About
51.6% investors believe that safety of principal is something one should consider
before investing, while 30.5% feel that the maturity period should be taken into
consideration. 58.6% investors say that high returns is something they consider
before investing and 31.7% investors have stated that low risk something they
keep in mind investing.
11 It was found that 34.10% investors look up for monthly returns and rewards while
they invest, while the remaining 65.90% investors have stated that they do not
look up for monthly returns while they invest.
12 When investors were asked about their opinion as to which security is most risky,
it was found that, about 48.80% investors believe that equity investments are the
most-riskiest, followed by real estate, that is 35.40%, and 14.60% have chosen
mutual funds are a risky security according to them, while 1.2% investors have
said that they find future trading extremely risky.
13 While the survey was conducted it was found that a few investors faced certain
difficulties while investing. The various problems investors face is as follows, that
is, lack of awareness, liquidity problems, inconvenience in operations, low returns,
poor services, etc. However, 15.9% investors stated that they do not face any
problems while investing.
14 It was found that 91.50% investors are satisfied with the investments they make,
while the remaining 8.50% investors stated that they were unhappy and not
satisfied with their investments.
15 It is also found that risk factor, that is, risk appetite of an investor reduces as the
investor’s age increases; however, age is not the only factor that affects an
investor’s risk appetite and tolerance. Other factors such as investor’s level of
income, spending and expenditure pattern of investors, etc. also play in role in
determining an investor’s risk appetite and the investor’s risk tolerance.
16 It was also found that a lot of investors have gained the importance of investing
and have begun investing from the past five years.
17 Finally, it was also found that the older generation of investors is not open to
investing in a lot of risky securities, whereas the younger generation of investors
seemed to be the risk takers.

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5.2 Suggestions:
The findings of the study will have some implications. The study has direct bearing
on the market for financial products such as shares, debentures, mutual funds, life
insurance, post office saving schemes, fixed deposits and also real estate and precious
securities like silver and gold, etc. Therefore, it is of special interest to policy makers and
regulatory authorities concerned with financial market. The regulatory body can safeguard
the interest of the new investors on the basis of their investing pattern.

Today, the financial market is increasingly complex and managing one’s own
portfolio will take up a lot of time and effort. There are situations when investors do not
have time or knowledge to explore the best investment alternatives in the market. This is a
common problem faced by many wannabe investors. At this juncture, portfolio
management services can help investor get out of this dilemma. So, investor can simply
assign his investments to portfolio management services who will report to him regularly
on his portfolio performance.

Thus, investor will not feel lost in this complex world of investments and the experts
will do their job. However, the investors should management their portfolios by
themselves if they have the time and skill. Investors should do their research in order to
benefit from their investments. The following suggestions maybe worth considering in this
respect:

1. It is suggested that investors should evaluate their risk appetite and risk tolerance.
Risk appetite does not only reduce due to the age factor, but due to other factors
such as investor’s level of income, spending and expenditure pattern of investors,
etc. Therefore, investors should keep these factors in mind and then evaluate their
risk appetite to see which investments fall within their scope of interest.
2. It is also suggested that investors should design a portfolio that consists of a mix of
equity investments as well as debt investments. Investors, after knowing their
ability to risk, should create the mix of debt-equity investments.
3. Investors before investing into the market or any security for that matter should do
a proper research by themselves or through the guidance and help of financial
advisors or professionals before investing the money into the security.
4. Investors should avoid paying attention to misleading comments and
misconceptions about the investment. Investors should also do their self-study

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 before investing rather than only depending on financial advisors and
professionals.
5. It is suggested to the investors that irrespective of their awareness regarding the
various investment avenues, investors should select the appropriate investment
avenue which is suitable for the investors.
6. It is suggested to the investors that at least the equity portion of the investor’s
portfolio must be reviewed regularly so that if any stock is not performing then
necessary diversification can be made. Investors should consider and give
importance to diversifying in order to gain fruitful returns.
7. The study revealed that the debentures are less popular in the Indian capital market,
which means that they are not investor friendly. Therefore, in addition to equity
markets, the debt market should also be improved.
8. It is advisable to the investors that they should keep on upgrading themselves with
new guidelines and changes in terms and conditions. Not only should they have
knowledge about the investment avenues where have invested, but they should be
aware of the overall investment avenues so that they can make necessary
diversification for keeping their portfolio profitable.
9. It is also suggested to the investors that while investing in any kind of real estate
the investors must do the required due diligence, specially while investing in non-
agricultural plots. From the data collected it was observed that a lot of investors
found investing in real estate risky, therefore, the investors should not hesitate to
invest in real estate, but should do a proper study from their end before investing.
10. It is also suggested that investors should not invest in securities just for the sake of
investing. If investors find it difficult in evaluating and selecting the right
investment, in such a case investors should definitely seek the help of financial
advisors and professionals.
11. It is suggested to the investors that regardless of whether you need a portfolio that
is more concentrated in stocks or bonds, you should consider diversifying within
each asset class.
12. Investors are suggested to just not invest in equity funds, but investors should also
maintain investments in debt fund. Therefore, investors should design a portfolio
that has a mix of both equity investments as well as debt investments.

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5.3 Hypothesis testing:
Testing of the hypothesis is essential to understand whether the hypothesis
constructed at the beginning of the research stands true to the facts or no. For this study
two hypothesis were designed. From the data collected and obtained the following results
are drawn:

The first hypothesis stated that the younger generations of investors are the ones
who take more risk, while the older generation is the non-risk takers. The hypothesis
stands true as it is observed that as the investor’s age increases the risk appetite and risk
tolerance of the investor decreases. This is because as the investor nears his/her retirement
age, the investor restricts themselves from entering into investments that might not deliver
good amount of returns.

Also the investors, as they age, tend to have lesser disposable income for
themselves, therefore they tend to cut down on expenses and feel satisfied with even
investments that offer them returns that are stable. They older generations of investors try
not to lose out on their returns that can fall short if the investment is not doing that well.

Therefore, they do not invest in risky securities in comparison to the younger

generation who are more fuelled up and are more flexible and technologically adaptive.
They have the benefit of a longer span of investing and therefore they can afford to take
huge risks while investing, in if in any case, lose money due to the investment not
delivering good results; the youngsters can still bounce back and recover the loss as they
have a longer time span for making investments and reaching their retirement age.

The second hypothesis was based on how investors if given a choice would want to
invest in equity, keeping the others factors aside. The second hypothesis also stands true.
When the investors were questioned regarding if they had a choice to either invest in
equity or debt investments, which investment would they select, and 78.27% investors
stated that they would select equity investments if given a choice between equity
investments and debt investments. One possible reason could be that equity investments
provide more returns to the investor, though the risk factor too is more in comparison to
debt investments.

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5.4 Conclusion:

Portfolio management is all about balancing and having the right mix of asset
classes and securities so that through the portfolio the investor can make good returns.
Through the data collected and analysed it is seen that investors have known about
portfolio management and that they have various opinions about their ideal portfolio mix.
However, it is important for investors to understand that investing in the investment
avenues that suit the interest of the investors is very important.

Investors should keep themselves updated with the various investment avenues
made available to them so that they can choose those investment that best fit their interest
in order to achieve their financial needs and goals. The market offers a lot of avenues to
choose from therefore investors should explore the market properly. Portfolio management
is for the benefit of the investors. Every individual has a unique investment portfolio and
requires a customized investment plan. This means that the best investment plan for one
person is completely different for someone else.

For example, there is a different strategy or investment plan for each individual based
on their income, budget, and age and also the risk ability. There are also many considerations
per individual and household, which is why portfolio managers need to provide customized
investment solutions to clients based on each client’s unique needs and requirement. For
example, someone who is in his or her 20s will have a completely different investment
portfolio plan than someone who is planning to retire in ten years as variables such as time;
inflation and risk need to be measured differently for each person’s situation.

The investors in Mumbai City have gained a lot of interest in investing. They have
keep in mind the concept of diversification and have stated their desired ideal portfolio
mix. Determining the mix of investment types is one of your most important tasks as an
investor. Every investment has different strengths that allow it to play a specific role in
your overall strategy. Determining the investors‟ portfolio's ideal asset allocation is not a
set-it-and-forget-it process. It's important to regularly make sure the asset allocation reflect
on the investor’s current financial situation, time horizon and risk tolerance. An investor
for achieving his/her long-term goals requires balancing risk and reward. Choosing the
right mix of investments and then periodically rebalancing and monitoring the choices
made by the investor can make a big difference in the outcome.

73
 Chapter Six: Bibliography

Websites:

• http://wwwfranklintempeltonindia.com/article/beginners-guide-
chapter24io04og31/using-debt-funds-to-help-stabilize-your-equity-portfolio
• http://www.dixon.com.au/investment-advice/benefits-of-diversification

• http://www.moneycontrol.com/news/business/mutual-funds/how-to-playsafeequity-
investments-1546297.html
• http://www.policybazaar.com/gold-rate/articles/why-investing-in-gold-a-goodidea/
• http://www.arborinvestmentplanner.com/portfolio-diversification-definitionand-
purpose/
• http://money.federaltimes.com/2014/11/17/the-characteristics-of-a-goodportfolio/
• http://www.yourarticlelibrary.com/investment/portfolio-analysis/traditionaland-
modern-portfolio-analysis/82677
• http://books.google.co.in/books/about/All_About_Asset_Allocation_Second_

Editio.html?id=C4XYcDyJ2YAC&source=kp_book_description&redir_esc=y

• http://books.google.co.in/books/about/The_Four_Pillars_Of_Investing.html?id

=cb6_SJN09qoC&sources=kp_book_description&redir_esc=y

• http://www.portfoliomanagement.in/personal-portfolio-management.html

• http://www.goodreads.com/books/show/713217-investment-analysis-andportfolio-
management
• http://www.investopedia.com/terms/n/non-marketable_securities.asp

• http://m.economictimes.com/mf/analysis/is-my-mutual-fund-portfolio-
goodenough/articleshow/68283186.cms
• http://www.investopedia.com/articles/younginvestors/12/portfoliomanagement-tips-
young-investors.asp
• http://m.economictimes.com/wealth/plam/how-to-construct-and-manage-
yourinvestment-portfolio-in-4-simple-steps/articleshow/66564454.cms

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• http://www.investopedia.com/articles/03/072303.asp

• http://www.moneycontrol.com/investor-education/classroom/debt-funds-orequity-
funds-the-right-answer-may-be-both-1232548.html?classic=true
• http://www.mbaknol.com/investment-management/different-types-ofinvestment-
portfolios/
• http://www.cnbc.com/2015/06/20/age-and-risk-tolerance-key-to-masteringasset-
allocation.html
• http://m.economictimes.com/analysis/all-about-evaluating-risk-tolerance-andrisk-
appetite/articleshow/23301855.cms
• http://Shodhganga.inflibnet.ac.in

• http://www.ecoti.in/FhYuBa13

• http://cleartax.in/s/asset-asset-allocation-by-age#imp

• http://www.entrepreneur.com/amphtml/250677

• https://www.livemint.com/Money/acOEUdiTuf5Ga0UJ08uUpL/Why-its-

important-to-ascertain-risk-appetite-before-investi.html

• https://www.iol.co.za/personal-finance/how-to-gauge-your-appetite-forinvestment-
risk-16320791
• https://www.cnbc.com/2018/08/21/why-understanding-asset-allocation-iskey.html
• https://www.fidelity.com/viewpoints/investing-ideas/guide-to-diversification

• http://efinancemanagement.com/investment-decisions/various-avenues-
andinvestments-alternative
• https://www.investopedia.com/articles/04/071304.asp
• https://www.entrepreneur.com/article/285877

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Books:

• All About Asset Allocation, Second Edition Paperback

By Richard Ferri (June 2010)
• The Four Pillars of Investing: Lessons for Building a Winning Portfolio
By William Bernstein (2002)
• Portfolio Management 1st Revised Edition
By Samir K Barua, J K Varma, V Raghunathan (1996)

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 Chapter Seven: Appendix

Questionnaire:

A study on Portfolio Management of Individual Investors in Mumbai City

This survey is conducted as part of my college research. The survey will help me to study
what investors expect from their investments and how they manage their portfolios.

1) Name:

-------------------------------------------
2) Age:
 25 – 35 years
 36 – 45 years
 46 – 55 years
3) Gender:
 Male
 Female
 Others

4) Occupation:
 Student
 Employed
 Unemployed
 Self- employed
 Other
5) Annual Income:
 Below 2 lakhs
 2 lakhs – 5 lakhs
 5 lakhs – 8 lakhs
 8 lakhs and above

77
6) Which investment avenues do you prefer you invest in?
 Equity shares
 Debentures or Bonds
 Mutual Funds
 Non-marketable securities
 Others
7) For how long have you been investing?
 Less than a year
 1 – 3 years
 3 – 5 years
 More than 5 years
8) How much percentage of your income do you set aside for investing?
 Less than 10%
 10% - 20%
 20% - 40%
 More than 40%
9) What factors do you consider before investing?
 Safety of principal
 Maturity period
 High returns
 Low risk
 Others
10) Do you look up for monthly returns while investing?
 Yes
 No
11) What are the sources that influence your decision to invest?
 Personal knowledge
 Advertisements
 Agents and financial advisors
 Friends and relatives
 Others

78
12) What are your objectives/ goals while investing?
 Growth of money
 Emergency fund
 Save for retirement
 Earn higher returns
 Reduce taxable income
 Keep up with inflation
 Others
13) If you have an option to invest in either equity or debt, which investment
option would you select?
 Equity investments
 Debt investments
14) Do you feel investing in mutual funds is better than investing in stock
markets?
 Yes
 No
 Maybe
15) Do you feel it is important to take the advice/ guidance of financial
advisors in order to enhance one‟s portfolio?
 Yes
 No
16) From the options given below, which according to you is an ideal portfolio?
 Less of equity, more of debt
 Less of debt, more of equity
 Equity and debt in the same ratio

 Only equity

 Only debt

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17) What are the inconveniences and discomforts, you face while investing?
 Less awareness
 Low returns
 Poor service
 Inconvenient to operate
 Liquidity
 None
18) Do you like to invest in risky securities, that is, are you a risk taker when it
comes to investing?
 Yes
 No
 Sometimes
19) According to you, which security is more risky to invest in?
 Equity shares
 Mutual funds
 Real estate
 Others
20) Are you happy/ satisfied with the investments you have made?
 Yes
 No

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