CHAPTER-6

SUMMARY AND SUGGESTIONS

 CHAPTER-6

FINDINGS, SUGGESTIONS, AND CONCLUSION

This chapter presents the overall summary of the study by highlighting the key
findings in accordance with the objectives of the study. Subsequently, the second and
third sections of this chapter provide suggestions and conclusions of the study.
Finally, the scope for further research are presented at the end of this chapter

Behavioural finance attempts to understand and explain observed investor

and market behaviours. According to Sewell (2007), “Behavioural finance is the
study of the influence of psychology on the behaviour of financial practitioner and
subsequent effects on the market.” The answer that behavioural finance offers is that
by studying human decision making behaviour we can “nudge” people into making
their optimal choice. It is a field of finance that proposes psychology-based theories to
explain stock market anomalies. Within behavioural finance, it is assumed the
information structure and the characteristics of market participants systematically
influence individuals' investment decisions as well as market outcomes.

Behavioural finance deals with the behaviour of individual and institutional

investors, corporate managers, portfolio managers, analysts, advisors, policymakers,
and various participants in the financial market and precedes the interaction with
them. There are always two participants in the financial market- the gainer and the
loser. Hence, one should be very careful while taking a decision which involves
judgmental bias and errors. Information plays an important role in the market and
different individuals perceive information differently as per their psychology or
mental frame (Redhead, 2008). Every investor has different objectives and time
horizon for his/her investment. One can look for either growth or capital appreciation,
can invest in equity or mutual fund, and may have long term or a short term horizon.
All of these objectives are based on the individuals’ characteristics and their ability to
make decisions under risk and uncertainty.

Financial advising is a prescriptive activity whose main objective should be

to guide investors to make decisions that best serve their interests. To advise
effectively, the advisor must be guided by an accurate picture of the cognitive and
emotional weaknesses of investors that affect investment decision-making; their

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occasional faulty assessment of their own interests and true wishes, the relevant facts
that they tend to ignore, and the limits of their ability to accept advice and to live with
the decisions they make. In the long run, Behavioural Finance would certainly help in
building better models.

The present study “Behavioural biases and the investment decision - A study
on Individual Investors in Visakhapatnam City” has been undertaken to identify and
measure the impact of behavioural biases on the investment decisions of individual
investors. The following objectives are identified for the study:

1. To study the trends in the Indian capital market.

2. To analyze the socio-economic profile and investment profile of individual
investors in Visakhapatnam city.
3. To study the influence of socio-economic factors on behavioural biases of
individual investors.
4. To analyze the impact of behavioural biases on investment decisions.
5. To focus on behavioural biases and the risk taking capacity of individual
investors.
6. To offer suggestions to the individual investors on behavioural finance and to
the regulatory authorities in regard to investments in the securities market.

Therefore, to study and analyze the above objectives, a total of four

hypotheses are framed and tested using MANOVA and multiple linear regression for
finding the relationship among the variables of the socio-economic profile, variables
of investment profile, and the dimensions of behavioural biases. The following are to
be considered as hypotheses.

Hypotheses of the Study

H01: There is no significant relationship between the socio-economic profile and
the investment profile of individual investors.
H02: The socio-economic profile of individual investors does not influence their
behavioural biases.
H03: There is no significant relationship between the behavioural biases of
individual investors and their investment decision-making practices.
H04: There is no significant relationship between the behavioural biases and the
risk taking capacity of individual investors.
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6.1 Major Findings

(A) Socio-Economic Profile

Age is considered a significant factor in understanding the profile and it has an

important bearing on social phenomena. The study found that 39.3% are in the age
group of 31-40 years, 27.8% are in the age group of 41-50 years, 17.8% are in the age
group of 21-30 years and 15.3% are more than 51 years. Furthermore, no individual
investor below the age group of less than 20. This conveys that the middle and
advanced age groups have adequate knowledge of the stock market.

It is found from the study that 76.3% of individual investors are males and
23.8% are females. This conveys that currently, the proportion of female participation
in the securities market is low.

The marital status of respondents revealed that 84.5% are married and 15.5%
of individual investors are unmarried. It shows that married investors are investing
more in the securities market with the hope of earning.

It is found that 56.5% of the respondents say that only one member is earning
in their house. 33.3% of the sample represents that there are two earning members in
the house. 8.8% shows that there are three earning members in the house. Only a few
respondents are expressed that they have more than three members who earn income
in their house.

Education is a basic factor for the enlightenment and emancipation of people.

It is observed that 48% of the respondents are graduates, 30% are post-graduates and
16.3% hold professional degrees. The proportion of respondents having an
educational qualification of 10th class and below is extremely low.

It is observed that 36.8% of respondents are employees working in private

organization, Government employees constitute to 27.3% and 18.5% of respondents
belong to entrepreneurs. The proportion of individual investors who are retired
employees, professionals, housewives is low in the participation of the securities
market.

When the respondents were asked about their monthly income, their responses
revealed that the majority i.e. 43.8% have a monthly income between Rs. 40,000 –

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Rs.80,000, 33.3% have monthly income less than Rs. 40,000 and 17.3% have Rs.
80,000 – 120000 monthly income. It is observed that only few respondents are having
a monthly income above Rs. 120,000.

The monthly savings of the majority of respondents i.e. 44.8% are between
Rs.10000-20000 and 30% of respondents are saving less than Rs. 10000, followed by
14% of the respondents fall under Rs.20,000-Rs.30,000. This conveys that the low
amount of savings of the respondents might restrict their participation in the securities
market.

(B) Investment profile

It is found that 80.5% of the respondents are new generation investors and
19.5% of the respondents are hereditary investors.

It is found that the 55.5% constitute to long term investors and 19.8% of
respondents pertain to all category (include long term, short term, and day trader),
13.5 % of respondents belong to day trader and only 11.3% of respondents come
under the category of short term investor.

It is observed that the 43% have invested their 10% to 20% of savings in the
securities market, 40% of the respondents invested less than 10% of their savings, 8%
of the respondents invested their 20% to 30% of savings and 9% respondents invested
more than 30% of their savings in Indian securities market.

It is observed that 60.8% of investors are investing in both primary and

secondary markets and 21.3% of the respondents preferred to invest only in the
secondary market. 16.3% of the respondents are interested in the primary market or
IPO’s and only 1.8% of the respondents have chosen the derivatives as their way of
investment in the securities market.

The individual investors preferred time horizon in investment avenues reveals

that 49.8% of respondents investing in bullion followed by 36.5% of post-office
saving schemes, 34.5% of respondents invested in Bank Fixed deposits and 33.8% of
respondents have opted Market Linked insurance schemes for more than 10 years. In
5-10 years of time period of horizon, 31.5% of respondents have invested in mutual
funds. 36.5%, 39.8%, 27.8% and 47.3% of respondents have invested for a period

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ranging 1-3 years in Bonds/Debentures, Preference shares, Equity Shares and ETF’s
respectively. 47.5% are preferred less than 1 year of investment horizon in
derivatives.

It is found that 45.3% of the respondents are aware about the online trading
portal and prefer it to buy and sell their shares, followed by 34% of investors have
opted both (online and offline trading) and 20.8% of the respondents are interested to
trade with stock brokers only.

It is observed that the 27.8% of investors have a passion to trade daily basis,
followed by 21.3% respondents are trading on monthly basis, 17.5% of them have
opted to trade on weekly basis, 12.3% of investors used to trade on annually. 8.5% of
respondents belong to half-yearly, only 6.5% and 6.3% of traders trade on quarterly
and fortnightly basis.

It is found that 31.5% of investors have portfolio valuation on monthly basis

and 23% of respondents monitor on weekly basis. 16% of investors are reviewing
their investments on quarterly basis and 11.8%, 10.3%, 7.5% of investors have a
review of investments on annually, fortnightly and half-yearly respectively.

It is found that 37% have an experience between 1 to 5 years, followed by

28% of the respondents have 6 to 10 years experience. 17.5% of the investors
constitute to 11-15 years and 14.8% of the respondents have less than 1 year of
experience. Only 2.8% of the respondents have more than 15 years of experience.

When the respondents were asked about the total investment in their portfolio,
they revealed that 41.5% have invested less than Rs.500,000 rupees in their portfolio.
30% of the respondents specified that their total investment in stock market between
Rs.500,000-Rs.10,00,000 rupees, followed by 24.8% invest Rs.10,00,000-
Rs.15,00,000 rupees respectively. Only 2% and 1.8% of the investors have invested
around Rs.15,00,000-Rs.20,00,000 rupees and more than Rs.20,00,000 rupees in their
portfolio.

It is found that 42% of the respondents believe in diversifying their portfolio

by investing in 5-10 companies followed by 29.3% of them are considered 10-15
companies to park their money. 17.3% of the respondents investing in less than 5

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companies and 11.5% of the respondents are fascinated towards making investment in
more than 15 companies.

It is observed that 75.8% respondents have always considered the past

performance of stock before making investment, 13.5% of the investors said as often
and 6% of the respondents have rarely considered but only 4.8% of the them
expressing as sometimes.

It is revealed that 81% respondents are investing their own savings as a source
of investment, 14.5% use both the sources (own savings and borrowings) and 4.5% of
respondents utilize borrowing funds to trade in stock market.

It is found that the 44% of respondents have an investment strategy while

investing in shares constitute to all three (Large cap shares, Mid cap shares, Small cap
shares), 30.8% respondents have chosen only Mid cap shares, 23.5% of respondents
selected only Large cap shares and only 1.8% of them are interested to invest in Small
cap shares.

It is observed that the 38.3% have mentioned their actual return on investment
ranged from 10% to 20% and 34.3% of the respondents getting less than 10% of
return on their investment. 19.8% of the respondents have 20% to 30% return. Only
7.8% of the respondents conveyed that they are getting 30% to 40% return on
investment on their portfolio.

(C) Relationship between the variables of Socio-Economic Profile and Investment

Profile

The experience of individual investors in the securities market is predicted by

their age, number of earning adults in the house, educational Qualification,
Occupation and monthly Savings.

The total investment in the portfolio by the individual investor depended on

their age, gender, occupation and monthly income.

The strategy of equity investment of individual investors depends on their age,

marital status, number of earning adults in the house, occupation, monthly income,
and monthly savings.

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 The percentage of savings invested in shares by individual investors depends on
their gender, educational qualification, occupation, monthly income, and monthly
savings

1. Level of importance of investment objectives

It is found that the 72.3% of the respondents felt that safety of capital as their
highly important investment objective and 69.3% of respondents marked liquidity.
67.3 % of the respondents preferred retirement planning as highly important
investment objectives. 63.5%, 60.5%, 59% and 57.3% of the respondents marked the
capital appreciation, hedge against inflation, regular income and tax benefits
respectively as highly important investment objectives. 2% of the respondents marked
retirement planning as not an important investment objective for their investment.

It is found from the study that the investment objectives such as regular
income, capital appreciation, tax benefits and liquidity have the highest mean value.
These are found to be high for investors age group above 51 years opted to invest in
the stock market according to their desired goals. Hedge against inflation is an
investment objective with a high mean value for investors in the age group 41-50
years.

It is observed that the male investors have mentioned retirement planning and
tax benefits as their preference of investment objectives.

It is observed that the investors who got married have a higher mean value for
capital appreciation, liquidity and safety of capital have opted as investment
objectives to invest in stock market and to fulfill their goals effectively.

It is examined that the investment objectives such as regular income, capital

appreciation, retirement planning, liquidity and safety of capital are high for investors
who is having minimum degree of education and to the investors with post-graduation
and above their objective is hedge against inflation which represents that they used to
invest in stock market in a planned manner.

It is found that the regular income is an investment objective to the investors

in the category of profession, students, housewife and others, followed by business
and private employees respectively. Capital appreciation is the main investment

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objective with highest mean for the respondents under the category of students,
housewives and retired employees respectively. Tax benefits also have the highest
mean for the investors who are in profession, housewives and other category
respectively. Liquidity has the highest mean values to investors, who are in
profession, students and housewives.

It is observed that the regular income and tax benefits are as an important
investment objective to the investors who earned a monthly income between
Rs.40,000-Rs.80,000. It is also observed that the investors whose monthly income
between Rs.1,60,000-Rs.2,00,000 are preferred to invest in the stock market with the
objective of safety to their capital and hedge against inflation. In addition, the
investors earned monthly income above Rs.2,00,000 opt to invest in securities with
greed of enhancing the liquidity and safety of their capital.

It is found that the investment objectives such as regular income, capital

appreciation, retirement planning and tax benefits have the highest mean values to the
investors who want to save their surplus amount of Rs.30,000- Rs.40,000. Liquidity
is an investment objective to the investors whose monthly saving slab is between
Rs.10,000-Rs.20,000 and hedge against inflation is an objective of investment to the
investors whose monthly saving is above Rs.50,000

2. Level of usefulness of source of information

It is found that the internet i.e. Financial and Business websites, company
sources newspapers, financial advisors/ portfolio managers, television and
brokers/forecast analysts, and magazines/journals are considered as extremely useful
information to the investors while making an investment decision.

3. Preference of Investment Options and Industries in Securities Market by

Individual Investors

It is found that the preference of investment options are in order of equity

shares, mutual funds, bank fixed deposits, market linked insurance schemes, post-
office saving schemes, bonds/debentures, exchange traded funds, preference shares,
derivatives and bullion.

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 It is observed that the preference of industries in selection of securities market
are in the order of the banking industry, fast moving consumer goods (FMCG),
information technology industry, financial services industry, pharmaceuticals
industry, automobile industry, power and infrastructure industry, manufacturing
industry, oil and gas industry, telecommunications industry, engineering goods
industry, capital goods industry and other industry.

4. Problems Faced by Individual Investors

It is found from the factor analysis four components are generated from the
twelve items namely price behaviour, market manipulation, lack of information and
lack of knowledge.

It is found that from the analysis that the factors extracted in the price
behaviour are high brokerage charges, poor accessibility of technology, high
transaction costs and high market volatility are highly influencing the investors when
taking an investment decision.

It is noticed that the factors loaded in market manipulation are price rigging,
insider trading, inaccurate information and uncertainty.

It is observed that the factors loaded in lack of information are lack of proper
communication through advertisements, uncertainty in companies profitability and no
proper advice form fund managers and stock brokers.

It is evolved that the factors loaded in lack of knowledge are lack of

confidence to make online trade by self and lack of knowledge in various securities.

(D) Influence of Socio-Economic Factors on Behavioural Biases

 Analysis of Heuristics Factors:

It is found from the result of factor analysis five components are generated
from the thirteen items namely Availability, Representativeness, Overconfidence,
Anchoring and Gambler’s Fallacy.

The first factor was availability. Two items are included in this factor are
prefer to buy Indian stocks than International stocks because the information of Indian

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stock is more available and consider the information from close friends and relatives
as the reliable reference for investment decisions.

The second factor was representativeness and it is composed of three items

which are past history influences present investment decisions, buy 'hot' stocks and
avoid stocks that have performed poorly in the recent past and use trend analysis of
stocks to make investment decisions for all stocks that they invest.

The third factor was overconfidence and it is generated five items. Those are
“In uncertain times, I usually expect the best”, trade in high volume when there is a
bullish trend in the stock market, take full control and responsibility of portfolio
performance, confident of ability to pick better stocks than others and also believe that
their skills and knowledge of stock market can help them to outperform the market.

The fourth factor was anchoring and included two items like fix a target price
for buying/selling in advance before starting to invest/trade and gradually shift their
reference point when they get new information.

The fifth factor was gambler’s fallacy and it include one item they normally
able to anticipate the end of good or poor market returns at NSE/BSE.

 Analysis of Prospect Factors:

It is also found from the factor analysis three components are extracted and
loaded from the eleven items namely Loss Aversion, Regret Aversion and Mental
Accounting.

The first factor was loss aversion and it included three items which are after a
prior loss they become more risk averse and after a prior gain they more risk seeker,
when markets are highly volatile they never enter a trade for fear of incurring loss and
making a loss of Rs.1000 gives more pain than the feel happy at making Rs.1000
profit.

The second factor was regret aversion and it composed of four items. Those
are sell the shares that have increased in value faster and avoid selling of the shares
that have decreased in value, select few stocks in their portfolio and regret if it doesn’t
perform well when the overall market is doing very good and book early profits in a
winning stock and hold a losing stock without maintaining stop-loss.

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 The third factor was mental accounting and included four items. Those are
generally differentiate between capital appreciation and income, always safer to keep
investing than speculating in the market due to high risk, interested in stocks
individual gain/loss rather than total gain/loss of the portfolio and do not enter too
many trades and increase the transaction cost.

 Analysis of Herding and Other Factors:

It is found from the factor analysis five components are extracted and loaded
from the fifteen items namely Confirmatory-Based Herding, Market factors,
Information-Based Herding, Cognitive Dissonance, Confirmation and Hindsight Bias.

The first factor was confirmatory based herding. Four items included in this
factor which are other investors decisions of choosing stock types have impact on
investment decision, other investors decisions of buying and selling stocks have
impact on investment decisions, investing in stocks where everyone else is investing
is less risky and other investors decisions of the stock volume have impact on
investment decision.

The second factor was market factor and it generated three items. Those are
market information is important for stock investment, study about the market
fundamentals of stocks before taking investment decisions and consider carefully the
price changes of stocks that intend to invest in securities market.

The third factor was information based herding and included four items. Those
are any IPO being oversubscribed then will also apply with less knowledge about the
company, when market crashes, follow the stock analysts suggestions completely,
often immediately sell/exit stocks when there is strong negative news in TV without
waiting further and seek signals from other traders in matters of financial knowledge
and trading behaviour.

The fourth factor was cognitive dissonance and it loaded two items. Those are
try to justify mistakes committed after making investment decisions and generally exit
early on the safer side than waiting for the target level.

The fifth factor was confirmation and hindsight bias it included two items like
“On hearing a rumour, try to obtain further information supporting the view rather

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than looking for contradicting news” and “Stock Markets will be volatile when RBI
announces its Interest Rate decisions in the economy”.

 Results of MANOVA Analysis:

It is found that the behavioural biases of availability bias, overconfidence,

herd behaviour and cognitive dissonance are higher in the age group of 41-50 years
than others. This advanced age group has the experience in stock market that leads to
confidence about their skills and knowledge also follow other to get the accurate
information from the advisors while making an investment decision.

It is also observed that the females are influenced by the behavioural bias of
mental accounting to make an investment decision.

It is noticed that the marital status of investors also influencing the behavioural
biases of overconfidence to make an investment decisions effectively. Married
investors tend to overestimate their abilities which lead to biased decision making

It is observed that the mean of representativeness, anchoring and herd

behaviour of investors have high influence on individuals who earn two members in
the house. Gambler’s Fallacy bias influenced respondents having three members
earning in the house. Finally, the availability and herd behaviour biases are influenced
by the members having more than three earning adults in the house to make an
investment decisions.

It is found that the availability, representativeness, overconfidence, loss

aversion, mental accounting, herd behaviour and cognitive dissonance, followed by
anchoring of investment behaviour have more influence on investors with a lower
educational qualification of investors. Gambler’s fallacy, regret aversion and market
factors also influencing the investors with a higher educational qualification
(Postgraduates and Professional Degree).

It is noticed that the biases of representativeness, overconfidence, loss

aversion and mental accounting of investment behaviour are influenced the retired
employees and the regret aversion influence the investors who run their own business.
Availability, anchoring, confirmation and hindsight bias are influence the investors in

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professional category. Also, observed that the biases such as herd behaviour, market
factors and cognitive dissonance influence the housewives.

It is observed that the investors whose monthly income between Rs.80,000-

Rs.1,20,000 are more prone to availability, overconfidence, loss aversion, regret
aversion, mental accounting, herd behaviour and cognitive dissonance. Gambler’s
fallacy have more influence on the income group of individuals between Rs.1,20,000-
Rs.1,60,000. Also, identified that the income group above Rs.2,00,000 are influenced
the biases of representativeness and anchoring, and confirmation and hindsight bias
are influenced the investors whose monthly income less than the Rs.40,000
respectively.

It is determined that the investors with monthly savings between Rs.30,000-

Rs.40,000 mostly influenced the behavioural biases such as representativeness,
overconfidence, loss aversion, mental accounting, herd behaviour, cognitive
dissonance and confirmation and hindsight bias.

(E) Relationship between the Behavioural Biases of Individual Investors and

their Investment Decision Making Practices

It is found that the 54.8% of investors consider the previous rate of return on
their stock market investments while taking current investment decisions, 50.8% of
follow the economic condition of the country for their investment decisions and 50%
of them opined that their aim and objective of investment influences their investment
decisions. 48.3% of respondents follow the fundamental analysis, 49.3% of
respondents follow the technical analysis and 53.8% of respondents opined that their
gut feelings influences the investment decisions in securities market.

It is found from the multiple linear regression analysis that investment

decision making practices of individual investors mainly influenced by the biases of
availability, representativeness, overconfidence, anchoring and loss aversion.

(F) Relationship between the Behavioural Biases and the Risk Taking Capacity
of Individual Investors

It is found that the 43% of respondents did not give any opinion on the
statement that they well aware of their risk taking capacity when it comes to any

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financial decision and 30.3% of the respondents agreed statement that they like to
invest 60% in Low risk instrument, 30% in medium risk instrument and 10% in high
risk instrument. 43.8% of investors agreed to take high risk in anticipation of high
gain from their investments and 42.3% of investors neutral to the statement that they
prefer trading in derivatives over equity and 32.8% of respondents agreed for that.
Around 59.5% of respondents agreed to trade in stocks/derivatives even if they are on
the losing side. 40.8% of the investors agreed that their financial goals are risky in
nature.

From the result of multiple regression analysis, it is found that the risk taking
capacity of individual investors mainly influenced by the biases of, overconfidence,
anchoring, loss aversion, regret aversion, herd behaviour, cognitive dissonance and
confirmation and hindsight bias.

6.2 Suggestions

Based on the findings mentioned earlier, the following suggestions were

recommended:

The advanced age group when combines like 30-50 years have experience in
the stock market which provides confidence about their skills and knowledge and they
also follow others to get the accurate information from the advisors while making an
investment decision. The behavioural biases of availability bias, overconfidence, herd
behaviour, and cognitive dissonance are higher in this group than others. This can be
reduced by trying to improve their independent decision-making skills and avoid
following others blindly. Investors are suggested to do the proper groundwork before
investing rather than depending on others.

In comparison to males, it is observed that women save more than men. More
technical knowledge and proper guidance need to be provided to them to make
diversified investments from their savings. In this study, it is found that the females
are influenced by the behavioural bias of mental accounting to make an investment
decision. It can cause investors to irrationally distinguish between returns derived
from income and those derived from capital appreciation. It is suggested that by using
a tool like personal financial planning to keep track of all income and expenses to
avoid narrow framing bias.

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 Investors who have lower education levels should reduce their overconfidence
bias by analyzing market trends. They initially opt for paper trading techniques which
can reduce their overconfidence levels. One can discuss with their friends or peer
group to get knowledge and to be an informed decision-maker. Proper planning can
help an investor to invest in a better and less risky manner.

It is seen in the study that the investors are influenced by the members in the
family and also found that differential biases exist. So it can be reduced by monitoring
themselves and by having self-control over their investment decision.

In this study, it is shown that the long term investors are more than 50% of the
total investors responded. Investments in the long term are always better than short
and medium term. It is suggested to the individual investors and high net worth
investors, they should focus on long term to get huge benefits and also remembering
that past performance need not guarantee future returns.

It is suggested that the investors should adopt debiasing strategy through

training, coaching, and other related interventions that are designed to improve
judgment on how to trade online. In the present day, most of the investors are
participating in online trading so they can undergo many training programs that are
provided by the SEBI through IEPF (Investor Education and Protection Fund). And
also provide the individuals with feedback about their bias.

The percentage of savings invested in the securities market is very less due to
volatility in the market. So it is suggested to the individuals can be motivated to invest
in the market, initially they can opt like less risky investments which attract more
investors to the market. Confidence levels should be built in the investors to invest.
This can increase the flow of savings to the security market. Diversified investments
should be encouraged as it is less risky and will make the investor feel confident
about his/her returns.

Many investors show dislike towards investments in the securities market due
to the issues concerned with the safety of the capital. This is mostly because of the
volatility in the markets as well as the economy. Any issue happening around the
world can have an impact on the investments in the securities market. Therefore,

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either the company or the depository participant must provide insurance against their
investments.

There should be a reduction in the high brokerage fees and transaction fees
which can attract many investors. Special events should be conducted on generating
awareness among technical issues of online trading. Investors should be given
training about technical knowledge.

It is suggested to the investors never invest by expecting huge returns from

the market as the market is never stable. Do not trust the advertisements and stories
covered by the internet. Do not follow market trends or experts advice blindly.
Consider personal research as priority while buying or selling.

And do not invest in the market by following the obligation of friends or

family. Never get committed to false transactions.

Overconfidence is often not grounded in reality. Overconfident investors

overestimate their ability to beat the market. They fail to meet their investment goals
as they tend to save or invest too little. Their overconfidence may also prevent them
from learning from past mistakes. This bias could be overcome by adopting a steady
and consistent monthly investment plan. Such a plan could help in lowering the
average cost per share in the investment.

Loss aversion tends to make investors to value gains and losses differently.
This would make them to sell winning investments and ride the losers. This could be
overcome through a number of steps. Some of them include (a) Building a fairly
broad and diversified mix of investments. This could facilitate softening the impact
of market volatility on the overall portfolio (b) Reworking the investments on a
constant and regular basis so that the portfolios are appropriate for the time frame and
to deliver the desired goals and (c) Keeping away from the short-term volatility and
focusing on the overall progress of the portfolio.

Capital gains tax on investment earnings has a substantial influence on

portfolio construction and diversification. While it’s not usually possible to make
them go away completely but it is very possible and absolutely necessary to minimize
the taxes wherever possible. It is advisable to take advantage of tax concession in
investment planning. One of the best ways to do this is to avoid heavy trading.

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Trading generates capital gains, and capital gains result in capital gains taxes. Those
taxes – along with all of the trading fees involved – can result in a portfolio that
doesn’t perform materially better than a buy-and-hold strategy.

It is good to invest in stocks with less price and high intrinsic value rather
than keeping huge money at time in the market. This might lead to high risk. Start
slowly and try to understand the market fluctuations. Once people are capable of
managing their portfolio, they can start investing in huge amounts.

Investors often use anchors, or points of reference, that may be irrelevant to

the decision. This makes them to look for information that supports their view. To
overcome this bias, investors should base their decisions on fundamentals and facts of
the stocks collected from a variety of inputs.

Investors should know the latest rules, guidelines and norms of SEBI while
making investment and they should also adopt a rational behaviour during investment.

Due to lack of communication and knowledge many interested investors are

not investing in the market. This can be handled by providing proper training and
proper interaction with experts, advisors, and portfolio managers who can bring
awareness among people to turn them into investors.

It also suggested that SEBI should strengthen regulations to protect the

investors against the market manipulation and price rigging. Besides adding other
market segments in its products, such as mutual funds and insurance, adding advisory
services through tie-ups, and using Artificial Intelligence, Robots, and computer
assistants to improve customer service and enabling investors to use their own
language for trading and investment are some of the innovations and value adds that
we can expect to see in the future in the discount broking space.

As investors are not well versed with their wealth maximization and rational
choice, norms to the intermediary to protect the interest of investors may be reviewed
by regulators. Therefore, more focus to be given on the investors education program
relating to fundamental and technical analysis to protect the interest of investors.

In this study, the most influential biases on decision making are availability,
representativeness, overconfidence, anchoring, and loss aversion. They can be

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reduced by gathering proper information from the companies, reducing the biases
which come by inherent and should have self-control and self-monitoring by
attending training programs, gaining knowledge on the market and increasing their
financial literacy. Investors can be aware of the benefits of sectoral rotation. This is
another way for them to earn better returns.

Investors can reduce bias by increasing their patience levels. This can be done
by doing breathing exercises, yoga, and meditation regularly.

6.3 Conclusion

From the findings of this study, it is very clear that behavioural biases
influence individual investors while making investment decisions in the Indian
securities market. To a greater extent, availability, representativeness,
overconfidence, anchoring, loss aversion has influence on investors behaviour in
taking investment decisions. Individual investors should take professional advice
from Financial Planners and implement financial planning for their financial goals.
The behavioural biases are not necessarily meant to make investors irrational but to
know how investor processes the information and how they act on such information.
An investor to be successful should understand his/her own investment behaviour
and it starts with recognizing and avoiding behavioural biases from their own
experiences and by setting of realistic and achievable objectives through a
diversifiable portfolio and also consider all the mechanisms of the financial market.

6.4 Scope for Further Research

 Since the study is confined to respondents of only Visakhapatnam city, the

present study is at a regional level, it could be extended to state and national,
and international levels.

 The exploration into the other behavioural biases and also a comparative study
of cognitive bias and emotional bias would also provide meaningful insight
into the investment behaviour.

 Further, this study takes into account, only the behaviour of individual
investors. In-depth coverage of institutional investors could be suggested.

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  In India, the behavioural biases are mostly studied using survey-based
techniques. In contrast, the possibility of researching this area with the help
of secondary data is still untapped in the Indian context. Therefore, secondary
data can be utilized for detecting the impact of behavioural biases on other
market indicators, e.g. P/E ratio, moving average, and others.

Reference

Sewell, M. (2007). Behavioural Finance. University of Cambridge, 1–13.

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