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Investment is doing an activity for making profit. The options for investment are huge
and they have different combinations of risk-return trade-off. Investment can take the
form of debt securities, mutual funds, stocks, derivatives, commodities and real estate.
People are looking for the best investment option to get maximum returns. The survey
conducted in India shows that the investment in stock market and mutual funds stand
at fifth and sixth places, respectively, in the top 10 investment options in India.
Understanding the financial personality is vitally important. It helps to understand
why a person takes the decisions, how a person is likely to react to the uncertainty in
investing and how a person can temper the irrational elements of investment decisions
while still satisfying the individual preferences.
In the international arena, Indians hold a good percentage of savings rate i.e., 30%.1
The average savings rate for US households as of May 2009 is 6.9%.2 Apart from the
traditional forms of investment, Indians started investing in stocks, which have
outperformed every other asset class from 2001 to 2007 as much as 60%. Yet, only 3% of
the Indian population directly invests in stocks, considering the volatility in the stock
market. Two lakh demat accounts are opened every month. Thirty-seven of the 50
companies in the Nifty index have seen an increase in the NRI investor base in the last three years. In this scenario, it is important to understand the investment behavior of the
individuals as it has a direct effect on the performance of the stock market.
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