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35

Awareness of Salaried Employees

towards Investment Portfolios

Rhitam Kalpataru Duttagupta1, Prachi Agarwal2

Sanjusha Mallareddy3 and Ramar Veluchamy4
1,2,3,4
Assistant Professor, Xavier Institute of Management
and Entrepreneurship, Bangalore.

Abstract:
The paper documents the level of awareness of salaried employees in investment portfolios. Portfolio
Investment is a collection of financial assets that include equities, bonds, mutual funds, exchange-traded
funds (ETFs), certificates of deposits, foreign exchange which is expected to generate returns based on
the market volatility. Investment Portfolios can provide additional income in a short span of time to
salaried employees. Objective of the study is to understand the awareness and their approach towards
various investment portfolios. Analysis of the study track down the reasons for investing in a particular
portfolio and understand their viewpoint towards other investment sources and to test the level of
knowledge of salaried employees in the field of investment portfolios. The study helps to understand
the retail investor sentiments towards investment as a concept and highlight the level of importance a
salaried employee gives to investments.
Keywords: Investment Decision, Awareness on Investment Portfolios, Employees’ Investment Options

INTRODUCTION
In today’s world, financial literacy plays a very important role in every individual’s lives.
In order to cope with rising prices in the economy individuals are required to have some
additional investments which will provide them with extra earnings other than their
salary. It has been found that majority people have basic financial knowledge but are
unaware of basic differences between stocks and bonds (Maarten van Rooij, Annamaria
Lusardi, Rob Alessie, Financial Literacy and Stock Market Participation, 2010). According
to one article in YourStory, as per global survey 76% of the adult Indian population
are unaware of basic financial knowledge. We will try to address the issue of financial
awareness among the salaried employees and use various analytical tools in order to
understand their mindset, knowledge, attitude, etc. Is there a relationship between
financial literacy and investments in various financial portfolios? Financial awareness
helps the salaried employees to grow their income which in turn will improve their

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overall financial position in the society. In this research we will use various qualitative
as well as quantitative techniques to understand the investment portfolio knowledge
of the salaried employees in Electronic City, Bangalore. The paper will also document
the various factors affecting the investment behaviors of the salaried employees.

REVIEW OF LITERATURE
Investment Portfolios are a group of income-producing assets which are bought by
the investors to meet a particular financial goal. Portfolio Theory was first sighted in
a book ‘The Theory of Investment Value’ by John Burr Williams in the 1930s where
he developed the dividend discount model. In earlier days, investors were to target the
best stock and buy it at the best price possible.
Investors in those days were laying bets on stocks that have best prices. They were not
focusing on the risk factor associated with portfolio investments. Harry Markowitz
introduced the Modern Portfolio Theory in his article ‘Portfolio Selection’ in March
1952, Journal of Finance. The article by Markowitz stated two mathematical axioms:
“nothing ventured, nothing gained” and “all your eggs in one basket”. Investment
Portfolios in India consists of bonds, stocks, and foreign exchange, commodities and
cash and cash equivalents. In India financial inclusion is very less compared to other
countries in the world. According to various surveys, it has been found that people
lack the basic knowledge of finance. They think that finance is only about accounting
and taxation. In a Standard & Poor’s Ratings Services Global Financial Literacy Survey,
they focused only on four topics which are risk diversification, inflation, numeracy, and
interest compounding and the major findings were that 1 out of 3 adults worldwide
responded to three topics from the four topics. In 2012 a Global Financial Literacy
Survey conducted by VISA states that only 35% of the Indians are financially literate.
Financial Literacy will bring proper financial planning which will enable people to
have a prosperous future. In India, the condition of financial literacy does not show a
favorable scenario. According to a survey in 2015, financial literacy in India is very low
(24%) compared to BRICS (28%) and European Nations (52%). People do not have
the habit of saving; it has been found that 31% of the people disagree towards saving.
According to the Economic and Political Weekly, there is 60% percentage point’s
variation between Indian states because of differences in gender, qualification, location
(rural, urban, and metro), and employment, technology savvy and current debt. It
has been observed that the country with high financial literacy also has a high GDP
per capita. Some findings also show the relation between literacy and socioeconomic
variables like males have better financial knowledge and it increases with education
level and aggressiveness of the investor. Financial literacy is an important determinant
while making investment decisions. It is the ability to understand and appropriately
apply financial management skills thereby taking calculated risks and maximizing
profits.

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In case of stock market participation, it has been found that lack of financial knowledge
reduces the investments by households in stocks (Guiso and Jappeli, 2005). There
must be proper understanding of economics and finance among households for
stock ownership (Rooij, Lusardi et al. 2011). Stock market participation and financial
literacy also depends on the age of a person. Young people tend to have low financial
literacy compared to middle-aged people (particularly 40 to 60) and the literacy rate
declines at an advanced age (61 or older). One of the research findings came up with
the fact that salaried investors prefer investing in bank deposits, real estate and gold
because of its safety factors (Patil and Nandwar, 2014). Financial decision-making of
salaried employees is severely affected by the level of literacy they have regarding the
overall financial markets. In case of Indian salaried employees, the financial literacy
is influenced by various factors such as gender, education and income. There are
many other factors as well which affect the financial awareness of working young in
urban areas like joint-family and consultative decision making also significantly affect
financial literacy. It has been found that there exists a positive correlation between
financial knowledge and financial behaviour (Agarwalla, Barua et al. 2013).
There have been many arguments on the subject that the less informed investors
had to incur more loss during the Global Financial Crisis of 2007-2008. So, it has
been found that financially literate people make better financial decisions compared to
less literate people (Guiso and Viviano, 2014). Personal financial management courses
might help to improve the financial literacy rate among people. It has been found
that adults with personal financial management courses in high school are not able to
utilize the knowledge in an effective manner.
Risk taking ability is also one of the important factors to be considered while
making investing decisions. In finance risk means the deviation of an actual return
on investment from the expected return on that same investment. Risk involves the
probability of losing some or all of an original investment. Risk education and risk
understanding are the important aspects that an investor must consider before investing
into any portfolio (Sachse, Jungermann et al. 2011). Risk appetite is influenced by
several factors such as confidence and character, past experience, income, etc. It has
been found that self-employed people have high risk tolerance and tend to invest
in high-risk financial investment sources when compared with salaried employees
(Shtudiner, 2018). Financial knowledge, objective knowledge, subjective knowledge
and risk-taking ability are highly correlated. And in this case gender is a very important
factor to be considered. As per studies it has been found male investors have higher
subjective knowledge and objective knowledge which tends to increase in risk taking
capacity in them compared to females.
In the context of Italian households, they found that demographic variables such as
education, wealth, and income and birth cohort have a positive impact on awareness
thus increasing the probability of holding stocks, relationship with banks, potency

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of social interactions and also an increase in the newspaper readership in the areas
where investors live. They also found that lack of awareness is a reason for limited
participation in financial markets and if all investors were aware of risky assets, stock
market participation would increase substantially. But they also talk about other barriers
which impede people’s participation in financial markets even if they are aware.
Demographic variables such as education, wealth, and income and birth cohort
have a positive impact on awareness thus increasing the probability of holding
stocks, relationship with banks, potency of social interactions and also an increase
in the newspaper readership in the areas where investors live. Sometimes, the
investor’s investment decisions are influenced by various psychological biases such as
overconfidence bias, economic expectations, prospect theory, etc. This psychological
bias has given quite a popular field of research called behavioural finance.
As per Guiso & Jappeli, (2005); Social learning is a good medium to disseminate
information to potential investors. Through social interactions the potential investors
become aware of various information regarding different financial assets. The
distributors of financial assets use social learning channels to spread information to
potential investors who are likely to buy an asset, mainly because such a medium of
information spreading lowers the cost of information dissemination.
Investment decisions depend on various factors which are being studied by many
researchers. Investor behavior is one of them which has a wide range of theories like
Regret Theory (Pareto, 1997), Theory of Mental Accounting (Thaler, 2001), Loss-
Aversion Theory (Kahneman and Tversky, 1979), etc. Hong, Kubik & Stein, 2004;
hypothesized there is an increase in stock market participation with an increase in
social interaction among people. It has been stated that there are two ways through
which social interaction occurs in the market – word-of-mouth helps in transfer of
information among the people in the market and the other way is the enjoyment that
people get by discussing the market trends.
Word-of-mouth helps the investors understand what is happening in the market and
act according to the market situation. However, under the delight of talking about the
market, there is an externality, with any individuals’ decision to leave the market making
it more likely that others in the peer group will leave too. In finance investors tend to
rely on the phenomenon called herd instinct, which means they follow the instincts
of other investors instead of assessing their own analysis. This means investors try
to buy and sell investments based on the investment decisions or strategies adopted
by other investors. Investors must be aware of the actions taken by other investors in
order to replicate the investment decisions. When an investment is made without the
knowledge of other investors’ decisions and then that individual withdraws from such
investment after figuring out that other investors have decided not to invest in it then
such behavior can be depicted as herd mentality. In the case of herd mentality, the
reverse is also possible which means an investor might start investment after knowing
that other investors have started investing in a particular asset class. (Bikhchandani and
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Sharma 2000). In most of the research it has been found that the salaried employees
have the basic level of financial knowledge but they still invest in bank savings accounts
and fixed deposits because of safety issues. It indicates that they have less risk appetite
towards investment portfolios.

GAPS IN LITERATURE
This study focuses on the financial literacy/awareness of salaried employees towards
investment portfolios. Various studies done in the past have focused mainly on the
developed economies but no substantial research has been conducted in emerging
economies such as India, this study focuses on the salaried people in the context of
Bangalore thus attempting to fill the contextual gap. There are several other barriers
such as income, risk ability, ignorance which also have an impact on the investment
decisions of the people, this has not been substantially accounted for in previous
studies. In most of the previous research, the focus has been towards the financial
literacy of the general public. The researchers have not focused on the knowledge
of specific investment portfolios that the people are aware of. The papers have
documented the level of literacy in finance and the reasons behind their low degree
of willingness towards investment. And also, the papers have not gone into details
regarding the effect of the income.

Conceptual Framework

Fig. 1

Hypotheses
Ha: Financial literacy affects investment decisions.
Ha: Income of salaried employees affects investment decisions.

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Research Objective
The objective of this research paper is to study the level of awareness of salaried
employees towards investment portfolios in the context of Bangalore. We would also
like to study the approach of salaried people towards investment portfolios i.e., if they
invest in certain portfolios, why do they do so and also what is their viewpoint towards
different investment sources.

Research Question
Does financial literacy affect salaried employees for taking decisions on investing and
what are the factors that cause them to take this decision?

Scope of Study
The paper will document the relationship between the financial literacy and the
decision-making attitude of salaried employees. It will capture the extent to which an
employee’s decision to invest depends on their financial literacy. In order to understand
this correlation, we are going to make a survey by selecting sample size as 50. The
survey will be conducted for the population of Bangalore City. The sample survey will
help us determine the relation between financial literacy and decision-making ability
of the salaried employees. While conducting the research we are going to take income,
channels of investment and risk-profile of the employees as the variable factors which
will determine their investment decision-making behaviour.

Data Specifics
In this research we are going to gather data of salaried employees to understand their
awareness level and literacy rate of investment portfolios. In order to understand the
relationship, we will collect information regarding their income, age, education, their
investment avenues, risk-taking ability and number of dependents. To find this data,
we are going to prepare a set of questions which will capture all the information
required for this research. We are targeting the city of Bangalore in order to carry out
our research. For data collection, we are going to apply a communication approach
and question the subjects and record their response for further analysis.

Sampling Method
In order to understand the relation between investments of salaried employees and
financial literacy we need to take a sample size to understand the population. For
this research we will take a sample size of 50 salaried employees. We are targeting
the salaried employees because they possess the right information which is required
for our research. Our sample frame consists of employees in Bangalore. Since it’s a
probability sampling technique each employee has an equal opportunity to get selected
in the sample size.

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Variables and Measures

Our group will take into consideration age, income, and risk-taking ability, number
of dependents, knowledge of investment channels, basic financial knowledge and
awareness about financial markets. We will collect these data with the help of a
questionnaire in order to capture all this information. The information that we seek
will be mostly categorical data. The set of questions will be qualitative in nature which
will help us arrive at our alternate hypothesis in a very accurate manner. We are going
to prepare an unstructured questionnaire which will help us capture qualitative data
and help us arrive at our results in an effective manner. The questionnaire is formed in
interval and ordinal scale which will help us measure the variables quantitatively.

Method of Analysis
To understand the relation, we will use a regression model and observe the anova table
in order to identify the R Square value. The regression line also will help us arrive at
our conclusion of the hypothesis formulated by us. In this analysis, multiple regression
models are to be applied in order to understand the accuracy, sensitivity and specificity
of the outcome after generating the regression model. As the data result is categorical
in nature and ratio and interval scale has been used multiple regression methods
of analysis will provide us with the appropriate results for our alternate hypothesis.
The model will help us predict the impact of financial literacy towards investment
portfolios.

Data Interpretation and Findings

Debt Instruments
Multiple R-squared Adjusted R-squared p-value Standard Error

40.06% 38.84% 6.246e-07 0.1066

Equation: y = (0.6102) x + 1.1781

The R output indicates that Newspaper and magazines have a significant impact on the
financial literacy of salaried employees because p-value is less than 5%. The multiple
R-squared is in the range of 20% to 90% from which we can infer that the model
is a good model for prediction. The model can predict 40.06% variability from the
mean of the dependent variable which is financial literacy in this case. The Adjusted
R-squared remained quite similar after reducing independent variables.
Equities
Multiple R-squared Adjusted R-squared p-value Standard Error

44.05% 42.91% 1.105e-07 0.09808

Equation: y = (0.60922) x + 1.16131

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The R output indicates that Newspaper and magazines have a significant impact on the
financial literacy of salaried employees because p-value is less than 5%. The multiple
R-squared is in the range of 20% to 90% from which we can infer that the model
is a good model for prediction. The model can predict 44.05% variability from the
mean of the dependent variable which is financial literacy in this case. The Adjusted
R-squared remained quite similar after reducing independent variables.
Mutual Funds
Multiple R-squared Adjusted R-squared p-value Standard Error

13.73% 11.97% 0.007442 0.1204

Equation: y = (0.3363) x + 2.1351

The R output indicates that Newspaper and magazines have a significant impact on the
financial literacy of salaried employees because p-value is less than 5%. The multiple
R-squared is not in the range of 20% to 90% from which we can infer that the model
cannot be used for prediction. The model can predict only 13.73% variability from the
mean of the dependent variable which is financial literacy in this case. The Adjusted
R-squared remained quite similar after reducing independent variables.
Exchange Traded Funds (ETFs)
Multiple R-squared Adjusted R-squared p-value Standard Error

35.08% 32.37% 3.145e-05 Annual Reports: 0.1361

Newspapers, Magazines:
0.1106

Equation: y = (0.3876) x1 + (0.4125) x2 + 0.1366

The R output indicates that Newspaper and magazines have a significant impact on the
financial literacy of salaried employees because p-value is less than 5%. The multiple
R-squared is in the range of 20% to 90% from which we can infer that the model
is a good model for prediction. The model can predict 35.08% variability from the
mean of the dependent variable which is financial literacy in this case. The Adjusted
R-squared remained quite similar after reducing independent variables.
Forex
Multiple Rsquared Adjusted Rsquared p-value Standard Error

38.74% 36.19% 7.804e-06 Annual Reports: 0.10459

Newspaper & magazines:
0.0849

Equation: y = (0.30671) x1 + (0.36326) x2 + 0.20830

The R output indicates that Newspaper & magazines and Annual Reports have a
significant impact on the financial literacy of salaried employees because p-value is less
than 5%. The multiple Rsquared is in the range of 20% to 90% from which we can

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infer that the model is a good model for prediction. The model can predict 38.74%
variability from the mean of the dependent variable which is financial literacy in this
case. The Adjusted R-squared remained quite similar after reducing independent
variables.

FINDINGS
From the above regression analysis, we can infer that newspaper & magazines and
annual reports impact most of the financial decisions of the salaried employees.
Most of the models have adjusted R-squared in the range of 20% to 90% except
for the model depicting the impact on mutual fund investments, which is below 20%
indicating a poor model. Therefore, a lot of financial knowledge is gathered by the
salaried employees from newspaper & magazines and annual reports. It can also be
said that the salaried employees rely a lot on these sources of financial information in
order to make investment decisions.

IMPLICATIONS
This study recommends the following suggestions which will help in improving the
financial literacy among salaried employees:
1. As per our analysis, we understood that most of the salaried employees rely on
newspaper and magazines and annual reports for making financial decisions.
Thus, it is advisable to those salaried employees to also look out for other sources
of information such as company websites, social interaction, brokers report, etc.
These sources will also provide them sound information about various asset
classes and they will be more informed about their investment decisions.
2. Employers should promote financial education through various programs such
as seminars, workshops among the employees in order to help them understand
the basics of financial responsibility.
3. Education about Personal finance can be imparted to the employees through
TV programs, community workshops and seminars. Financial institutions must
leverage the popular media channels such as TV and Internet.
4. The basic financial education should be introduced into the core-curriculum at
various levels in the education system to improve the level of financial literacy
among students which would form the working class in the future.

CONCLUSION
Financial awareness among salaried employees is restricted to sources such as
newspapers and magazines mostly and in some cases annual reports. Thus, there is
a need to increase the awareness regarding various financial instruments which can
prove to be beneficial for the salaried people in planning their future. Also, the Indian
education system needs to be developed in a way that knowledge about managing
personal finances is inculcated among individuals from the very beginning.

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REFERENCES
[1] Luigi Guiso and Tullio Jappelli. (2005). Awareness and Stock Market Participation, Review of
Finance.
[2] Marteen van Rooij, Annamaria Lusardi, Rob Alessie. (2011). Financial Literacy and stock market
participation, Journal of Financial Economics.
[3] Sonali Patil and Dr. Kalpana Nandwar. (2014). A Study on Preferred Investment Avenues among
Salaried People With Reference To Pune, India, Journal of Economics and Finance.
[4] Luigi Guiso, Eliana Viviano. (2014). How much can Financial Literacy Help?, Review of Finance.
[5] Ze’ev Shtudiner. (2018). Risk Tolerance, Time Preference and Financial Decision Making:
Differences between Self-employed People and Employees, Ariel University, Department of
Economics.
[6] Harrison Hong, Jeffrey D. Kubik, Jeremy C. Stein. (2005). Social Interaction and Stock-Market
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[7] Sushil Bikhchandani, Sunil Sharma. (2000). Herd Behavior in Financial Markets: A Review, IMF
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[8] Sobhesh Kumar Agarwalla, et al. (2013). Financial Literacy among Working Youth in Urban India,
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[10] Standard and Poor’s Global Financial Literacy Survey, 2019.
[11] Michael F. Dallas, Value and Risk Management: A Guide to Best Practice.

460 Editors: Chanda, Sengupta and Mohanti