The Indian capital market offers a gamut of financial instruments
Income has always been a crucial variable for distinguishing investment options.
The investment pattern is a long-term perspective. Investing one’s hard-earned money can have a major impact on investor’s future well being. Every investor has to appraise his risk-appetite, understand his financial goals, analyze the risk-return trade-off and then make an investment decision.
The outcome of a study showed that demographic factors of retail investors such as investment knowledge, education, income, and investment experience affect the risk tolerance level of investors and therefore influences investor’s decision-making capacity. Besides, the results are also vital for investment managers as these help them to advise their clients with better investment opportunities as per their demographic profile.
The Indian capital market offers a gamut of financial instruments such as government securities, preference shares, commercial paper, equity shares, certificate of deposits, call money market, industrial securities and mutual funds. It is essential to know the factors affecting the decision-making of retail investors based on demography.
There are several demographic factors that determine and influence the decision-making ability of retail investors. In the discussion based on the surveys, 9 main factors have been identified below.
9 Essential Factors Affecting Retail Investor Decision-Making
1. Age of the Investors
The investment factor often goes with age. The age of investors plays a crucial role in identifying investment behavior. The majority of the retail investors, i.e., 54.9%, fall in the age group of 26 to 40, followed by 33.3% of investors who are in the age group 41 to 60. The survey also revealed that a less percent of investors (6.2%) are in the age group of above 60.
2. Gender of the Investors
Gender serves as a useful variable for investment in equity shares because it seems to reflect the options, attitudes, and prudential motives of retail investors. In general, most of the investors in the equity shares are males (92.4%). Females (7.6%) are not much exposed to the effectiveness of retail investment and their consequences. This profoundly reveals that males are more enthusiastic than females in equity shares investment.
3. Marital Status of the Investors
Marital status affects the investment pattern of investors as this state makes the investor think twice before investment. The marital sentiments force them to invest for their future prospects and prudential purpose. However, due to various family commitments, married investors are not able to concentrate more on investment in the equity shares. It is found that 80.3% of investors are married, and 18.4% are unmarried, and the remaining 1.2% is separated according to marital status.
4. Education of the Investors
It is found that most of the investors have a good educational background. Education is a powerful background for the investor’s analysis of the pros and cons of investment in equity shares based on the information gathered through television and magazines regarding equity shares in India. It is evident from the fact that 48.8% of the investors are graduates, 20.6% are postgraduates, and 12% are professionals.
5. Occupation of the Investors
Many investment companies and stockbrokers have found that occupational category can also be used to distinguish the investment pattern and decision making. Most of the investors are working in private concerns (43%) or running their own businesses (32.7%). Government employees are found to be not much enthusiastic about equity shares investment. The survey also found agriculturalists and retired people to show the least interest in investing their surplus money in equity shares.
6. Income of the Investors
Income has always been a crucial variable for distinguishing investment options. It is known that affluent investors are much enthusiastic about investment and need better returns. It is found that 39.1% of investors belong to the income groups of Rs. 1 – 2 lakhs, and 26.6% investors have the income less than Rs. 1 lakhs, while 22.9% are in the income of groups of Rs. 2 – 3 lakhs. Investors with more than Rs. 3 lakhs income do not show much interest in investments in equity shares.
7. Nature of Family of the Investors
It is an essential factor affecting investor decision making and investment patterns. Family nature is considered as one of the burdens affecting the investment behavior of investors. It is clear that the investors in the joint family are not much enthusiastic about investment in the equity shares, while the investors belonging to the nuclear family are able to invest a significant portion of their income in equity shares.
8. Number of Dependents of the Investors
The number of dependents is playing a significant role in deciding the investment amount of investors. When the number of dependents is more in the family, their decision making and investment behavior patterns also change significantly. The number of dependents and investment are inversely proportional to each other. Thus the more the number of dependents in the family, the least will be the money available for investment in this present economic situation.
9. House Ownership
Retail investors with a rented house or own house usually behave in a different manner during their investment decision-making process. Generally, a rented house hinders their investment decision-making by exploiting their income. If retail investors have their own houses, they are more likely to divert their income in the form of equity share investments. It is also found that 85.7% of the investors in equity shares have their own houses, and 14.3% are in rented houses.
I hope the above information will cater to the need to identify the decision-making pattern of retail investors of our population. Note that the financial advisors are always there to facilitate financial awareness among the retail investors and guide them all the way through.
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(About Author: Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)