A Study on Investment pattern of Salaried Individuals in Odisha Santosh Kumar Mohapatra (An Odisha Based Eminent Financial Columnist) Published in Splint International Journal of Professionals (A bi-Annual Peer Reviewed International Journal of Management & IT) Vol. 2 No. 1 Jan. 2015 ISSN 2349-6045 ABSTRACT Savings and investments by individuals are important both for personal financial well-being and for economic growth. People with savings are better able to weather economic shocks such as a loss of income, to build assets for the future, and are less reliant on credit to cover unexpected expenses. Savings can also be turned into further increased income and wealth through proper and prudent investment. Proper investment spurs addition to wealth, as once people start investing, they begin to own assets and hence get an income from wealth in addition to their income from work. This study examined “Investment pattern of Salaried Individuals in Odisha. The underlying principle behind choosing this topic is the basis that the salaried class in India constitute majority of savers and has gained attention of the economists, policy makers and the marketers, as there remains a considerable untapped, unharnessed potential in this income class of India. The data was collected through a structured questionnaire from 100 salaried individuals from twin cities of Cuttack and Bhubaneswar where majority of salaried individuals reside or work. The research shows that the preferred mode of investment of respondents is bank deposits followed by life insurance. However, majority of the respondents are investing their lifetime savings/surplus income in real estate, though most have to borrow for this purpose. However, majority of the respondents have expressed that they are likely to invest in real estate followed by bank deposits, Life insurance in future. Though majority of respondents are likely to take moderate risk for moderate return, they attach more importance to safety and security of their investment. Key Words: Demographic Variables, Preferred Mode of Investment, Investment Factors and Financial Risk Tolerance INTRODUCTION Saving and investment behaviour has always been an area of interest to the economists and researchers. In common parlance, savings behavior means the manner in which an individual or household acts and reacts to the process of savings. On the other hand, investment behaviour of an individual reveals how one wants to allocate the surplus incomes to various instruments for investment available with an eye to generate higher returns. The saving and investment differs from person to person and place to place. In each life cycle stage, every individual desires his hard earned money to be invested in most secure and liquid avenues.Typically, households invest their savings in financial assets (i.e., a bank account, fixed deposits or life insurance or mutual fund, etc) or equity or bullion or real estate such as a home. However, the landscape for the management of household wealth has changed dramatically in a relatively short time. People are also now increasingly expected to take individual responsibility for their economic well-being .Economic growth, prosperity provide many households with increased opportunities to accumulate savings and to invest their wealth portfolio. At the same time, the deregulation of financial markets has increased competition between financial institutions and heightened financial innovations, which among others has spawned a continuous stream of new financial instruments. We see the development of new products with greater complexity than ever before. A large number of innovative, esoteric and alternative investment avenues are also available today for wealth creation, each of these having varying degrees of risk and returns. One’s investment style also changes to keep pace with risk profile. But a very few are investing in those investment avenues as the knowledge of people about those products has not grown in tandem with introduction of those products STATEMENT OF PROBLEM The rate of savings of India is one of highest in world. Traditionally India is regarded as nation of savers. But one`s savings are not necessarily his investment. Savings can also be turned into further increased income through proper investment. Savings becomes efficient investment when the return from that investment more than offsets the total cost of the asset, taxes and inflation. But, people confuse saving and investing today. Indians are wise savers, but poor investors (NCAER survey, 2007; various RBI report). Today, savers are losers. What one saves continuously depreciates due to inflation and income tax. Everyone wants to have money and be rich, but few go about it the right way. The major share of household wealth income, is being allocated to non-financial assets such as to gold jewellery, real estate etc, which is unproductive, inflationary in nature and serves as a conduit for investment of black money (S.K.Mohapatra, Orissa POST, 23 September 2012). Unless the common person becomes a wiser investor, wealth creation for the investor and the economy will remain a distant dream. OBJECTIVES OF THE STUDY 1. To find out the distribution of savings/ surplus income in different instruments and preferred mode of investment 2. To explore the avenues where respondents have invested major portion of their surplus income 3. To find out Investment Avenue that is likely to get top priority in future by respondents 4. To explore whether investors borrow in order to make investment VARIOUS SAVINGS/INVESTMENT AVENUES AVAILABLE All savings products carry a level of risk and these can be rated as low risk, medium risk and high risk. Low risk products offer lower returns compared to high risk products. Products are chosen based on the individual’s circumstances and their risk appetite. Depending upon risk embedded in it, all savings and investment avenues can be classified in to 7 categories such as: (1) Low Risk Savings/Investment Avenues (2) Moderate Risk Investment Avenues (3) High Risk Investment Avenues (4) Physical savings /Investment Avenues (5) Emerging /Alternative investment avenues (6) Traditional high risky investment avenues (7) Compulsory savings from salary, etc Low Risk Savings/Investment Avenue: It includes Savings in Cash, Savings Account including other bank deposits, Bank Fixed Deposits, Public Provident Fund (PP F), National Savings Certificates (NSC), Other Post Office Savings /Small Savings, Government Bond/ Securities/Inflation Indexed National Savings Securities (I I N S S) etc. Moderate Risk Investment Avenue: It includes Mutual Fund/ Equity linked savings scheme (ELSSs), Unit Linked Insurance Plan (ULIP), The Rajiv Gandhi Equity Savings Scheme (RGESS), Life Insurance, Pension Schemes/National Pension Schemes etc. High Risk Investment Avenue: It includes Debentures in private companies, Company fixed deposits, Equity /Share Market/stock market, Derivatives such as future, options and swaps, Commodities Future, Exchange traded Fund etc. Physical savings/ Investment Avenue: It includes Real estate: House property /land, Gold/silver/diamond as jewellery for ornament purpose, Gold/silver etc as investment purpose (Bullion - gold coin/bar/ingots, gold ETF, Small Businesses etc. Emerging /Alternative investment avenue: It includes Real Estate Fund, foreign stock, forex trading, Private Equity/ Venture capital, Hedge funds, portfolio management schemes (PMS), Art and Film Funds, Wine, paintings, antiques , collectibles etc. Traditional high risky investment avenue: It includes Chit Fund /pongy schemes/ money circulation/Public Investment schemes such as agro-bond, plantation bond etc Compulsory savings from salary: It includes from savings compulsorily deducted from salary such as Employees Provident Fund (EPF) / General Provident Fund GPF/ Contributory provident Fund (CPF)/ National Pension Schemes (NPS) etc. LITERATURE REVIEW Any types of investors or salaried individuals have different preferences of investment decisions according to the demographic variables. According to The NCAER Survey (2007), majority of people are keeping their money in liquidity assets-in cash, bank deposits and post office deposits. While 23 percent are investing in physical investments like real estate, gold, and only 12 percent in financial instruments. According to Invest India Income and Savings Survey (2007), investors perceive more risk in investing gold followed by silver, chit fund, livestock, equities, self help group, commodity future markets, savings schemes of Micro Finance Institution, Mutual Funds, Agricultural Land, House/real estate, residential plot, central government bonds, bank deposits, life Insurance and postal savings. However, if persons with no options are considered bank deposits are considered/ perceived by investors as least risky followed by postal savings. In India, the saving is invested very conservatively. It is primarily in low risk Bank Fixed deposits, which take a lion share of 56.5%. Stocks, Debentures and Mutual Funds take away only 10.5 %. Indians have put more money on Insurance (17.6%) than stocks, Mutual Funds combined and they take Insurance as an investment option. The savings allocated to various financial assets shows downward trend (RBI Data) According to NCAER household Survey (2011) sponsored by SEBI,the primary destination of savings across household categories in India is insurance schemes and banks, Post office savings schemes are, for obvious reasons, less preferred compared to commercial bank deposits and accounts as such schemes have cumbersome procedures and offer inadequate returns. ArthaYantra (2013) made survey among a pool of over 2,000 salaried professionals working across industries in India. According to the survey, 77.50% stated that insurance is their primary choice as an 80C investment vehicle. When drilled down further, 96% preferred insurance as tax saving investment. Nearly 7% invest in equity-linked saving schemes According to Survey of PHDCCI (Zee news, 12 October2014), the preferred choice for investment in India is real estate sector, followed by gold and silver. The survey said fixed deposits have also been an important avenue of investments. Sanjay Kanti Das (2012) studied the saving & investment pattern of the middle class households of Barak Valley in Assam. He observed that Tax benefit, security & safety, high returns, liquidity and so on are the common order of investment objectives among the respondents. Digal, and Chakraborty (2012) studied the Saving And Investment Behaviour of Individual Households in Odisha (nine districts). Fixed deposits in banks and investment in real estate is the most popular savings and investment avenues for male investors whereas, investment in real estate and bullion is the most preferred avenues for the female investors. The Government sponsored small saving schemes such as national saving certificates (NSC), public provident fund (PPF), Indian post office saving schemes, etc., has wider acceptance and are preferred by both male and females. They also observed that women are risk averse indeed but save more than the male counterparts as the income, level rises. However, the study by B.N. Panda and J.K.Panda (2013) professes that for employees of education sector in Bhubaneswar, life insurance is most preferred investment avenues followed by PPF, bank deposits, equity mutual fund, real estate, post office‐NSC, and company fixed deposits, gold, corporate debenture, FI bonds and others Palanivelu and Chandrakumar (2013) made study, an analysis into preferred investment avenues among salaried peoples in Namakkal Taluk, Tamilnadu, India. The analysis shows that insurance is the preferred investment avenues for salaried class peoples followed by bank deposits, investment in Gold and Estate. As far as investment objective is concerned, main investment objective is safety followed by tax saving. . The research by V. Sornaganesh and, Karthikeyan(2014) shows that majority of the salaried class respondents are saving money in bank deposits for the safety of an unpredictable future. While B.Thulasipriya (2014) observed that salaried people will look after the safety of their investment rather than high returns. The study reveals that bank deposit remains the most preferred investment avenues of the households. Puneet Bhushan Sood and Yajulu Medury (2014) analyzed the investment preferences of salaried individuals towards financial products based on various demographic factors drawn from Delhi, Gurgaon and Noida . He observed that males prefer Mutual funds and Life insurance Products whereas females prefer Recurring Deposits and Market Investments. The government employees tend to invest in safe investment instruments whereas private employees tend to invest in those investment instruments, which offer more returns and are more risky. Married respondents prefer safe investment instruments whereas unmarried respondents prefer Mutual Funds and Market Investments, which offer more returns and are more risky NEED OF OUR STUDY The available literature suggests that there are no studies available, on the savings and investing behaviour across the all types of savings and investment avenues including latest alternative investment avenues. Many past studies have tried to unravel the preferred mode of savings or investment of respondents. But study has not been held where one has invested his /her major portion of his surplus income in life time. Many people borrow in order to save or invest in real estate, gold, chit fund, share etc in order to get higher return from those investments than they pay as interest rate on loans. Even in certain cases such as purchase of land or construction of house, require huge expenditure, which is feasible by borrowing only. Such things have not been studied in past. RESEARCH METHODOLOGY The study is based on primary and secondary data. Primary data have been collected from 100 respondents through a structure questionnaire covering different groups of salaried class in twin cities of Cuttack and Bhubaneswar. The secondary data have been collected from various books, magazine, journals, newspapers and websites. The sampling technique followed in this study is purposive stratified random sampling. ANALYSIS AND INTERPRETATION Demographic Variables According to the Table 1, the proportion of male respondents was 70 % and that of female respondents was 30% per cent. It reveals that the salaried male investors are more than the salaried female investors are. It is understood that the majority of 40 % of the respondents belonged to the age group of ‘41 – 50 years’ while the age group of 25% of the respondents was belonged to the age group of 31– 40. In the age group of ’51 to 60 years’, there were 20 % of the respondents. The remaining 15 % of the respondents belonged to the age group of ‘18 to 30’ years’. It denotes that the majority of the investors are middle-aged persons. In the age group of‘18 to 30’, lower number of respondents is attributed to lack of recruitment in government and public sector undertakings in neo-liberal era. It is to be noted that 15% the respondents are undergraduate while 40 % have completed their education at Graduation level. Similarly, 24 % of the respondents have completed their PG level education while 21% of the respondents hold professional qualification. It implies that the majority of the salaried investors are qualified and educated. In present era, professional qualification has gained importance. Table 1 evinces that a higher proportion of 43 % of the respondents are doing supervisory and clerical job while 18% of the respondents are professional. Similarly, while 10% respondents are having managerial job, 14% respondents are doing administrative/executive jobs. However, only 15% belongs to class-iv or peon. It denotes that the majority of salaried investors doing supervisory and clerical job. As far as annual savings is concerned, it is evident that 15% of the total respondents had an annual savings up to Rs.50000 while the annual savings of 30% of the respondents was between Rs.50001 and Rs.1.5 lakh and that of 20% of the respondents were found to have savings between Rs.150001 lakh to 3 lakh. Similarly, while 18% of the respondents had annual savings between Rs 300001 to 6 lakh, only 17% respondent had savings above Rs 6 lakhs.. Out of the total respondents, 12% of the respondents earned an annual income up to Rs.2 lakh, while 40 % of the respondents earned an annual income ‘200001 to 5 lakh’. Similarly, while 32 % of the respondent earned annual income‘500001 to 12 lakh’, the remaining 16% respondent earned annual income above 12 lakh. It signifies that the annual income of most of the respondents lies between ‘200001 to 5 lakh’. DEMOGRAPHIC VARIABLE (Table-1) DEMOGRAPHIC FACTOR VARIABLE No. Of respondents Percentage of respondent Gender Male 70 70 Female 30 30 Total 100 100 Age 18-30 15 15 31-40 25 25 41-50 40 40 51-60 20 20 Total 100 100 Educational level Undergraduate 15 15 Graduate 40 40 Post-Graduate 24 24 Professional 21 21 Total 100 100 Occupational Managerial 10 10 Administrative/Executive 14 14 professional 18 18 Supervisory/clerical 43 43 peon/class-iv 15 15 Total 100 100 Annual savings Up to Rs 50,000 15 15 50001 to150000 30 30 150001 to 3 lakh 20 20 30000001 to 6 lakh 18 18 Above 6 lakh 17 17 Total 100 100 Annual Income up to 2lakh 12 12 200001 to5 lakh 40 40 500001 to12 lakh 32 32 above 12 lakh 16 16 TOTAL 100 100 Preferred mode of Investment In order to find out the preferred mode of Investment, the respondents were asked to state their current holdings in different savings/investment avenues as explained above. All most all are found having bank saving account and investment in gold jewellery for ornament purpose in lifetime. We considered only whether they have invested in bullion for investment purpose. Similarly all most all have any form of compulsory savings from salary. Hence, we consider only additional deduction made by respondents in compulsory savings apart from mandatory amount. From our study, it was observed that total numbers investments made by100 respondents in different avenues is 386. From table -2, it is found that while understandably, life insurance is the most preferred mode or popular investment avenue as 95 out of 100 respondents have Life Insurance policies followed by bank deposits(85), Real estate(80), Postal/PPF/NSC(32), additional compulsory savings such as EPF,GPF.PPF/NPS (25), Mutual Fund/ULIP (20%), Bond/Debenture(11),Gold bullion(15), Company deposits(8%),Share /Equity (8), Chit Fund/Ponzi schemes (7) etc. However, it was observed that (see table-2), none of the investors have invested in Derivatives and Commodity Futures, Exchange Traded Fund including any alternatives investment avenues. But when question was asked to respondents, where they have invested their major portion of surplus income of life, Real estate was found to be first choice. Out of 100 respondents, 68 persons say that they have invested major surplus income of their life in real estate followed by Bank deposits(15),Compulsory savings(9), Life insurance(8) etc. However, out of 80 respondents invested in real estate, 72 have reported that they have incurred borrowing to invest in real estate. However, when respondents were asked where they would prefer to invest in future, it was observed ( see table-2) that out of 100 respondent 43 say they want to invest in real estate followed by bank deposits(19), Life insurance (15), additional compulsory savings(5), Gold /Bullion (3), Mutual Fund (4), Postal/PPF(6), Equity/share(2) Bond/debenture(1). However, 2 respondents said that they cannot say now. Various Factors That Influence the Investment Decision Making, Various factors influence the investment decision making. Respondent were asked to give 3 option.100 respondents gave 300 option. It was found ( see table-3) that safety and security( 30%) is the prime factors that guide investment followed by liquidity(17%), high returns(13%) , Better service (12%), Risk diversification(10%) ,Easy access to Institution/marketability (8%) and Investment horizon(7%). Macro-Economic Scenario(3%) 1. Table-3 Factors that guide Investment Factors that guide Investment No of Respondent % Rank Factors High Returns 40 13 3 safety/security 90 30 1 Liquidity 50 17 2 Better Service 35 12 4 Easy access to Institution 25 8 6 Investment Horizon 20 7 7 Risk Diversification 30 10 5 macro-Economic Scenario 10 3 8 Total 300 100 Table-4 Financial Risk Tolerance Financial Risk Tolerance No of respondent % Rank Low 38 38 2 Moderate 45 45 1 High 12 12 3 Extremely High 5 5 4 Total 100 100 Financial Risk Tolerance Respondents were asked to judge themselves what type of financial risk they have. It was observed (see table-4) that out of 100 respondents 40% want to take moderate risk for moderate returns of their investment. Similarly, 38% have low risk bearing capacity, which implies that they want to take low risk, even if the return is low. But only 12% want to take high risk for high returns. However, only 5 percent have mentality to take extreme high risk for excessive returns CONCLUSION From above analysis, it can be concluded that Life insurance is the most popular and preferred most of investment of salaried individual followed by bank deposits, real estate. Nevertheless, major portion of surplus income/savings are invested in real estate followed by Bank deposits, additional compulsory savings from salary and Life Insurance. However, many take recourse to borrowing while investing in real estate. Even, majority want to invest in real estate in future followed by bank deposits, life insurance. Similarly, salaried individual consider safety/security of their investment first while investing and prepared to take moderate risk. Hence, government should incentivize the financial saving by ensuring higher returns through increase of interest rate or enhancing tax rebate limit. The government should make financial education as a compulsory curriculum in School and College. REFERENCE: 1. ArthaYantra(2012), “Personal Finance Habits of Salaried Professionals in India”, Web link slideshare.net/ArthYantra/personal-finance-habits-of-salaried-professionals-in-india 2. Chakrabourty, Suman and S. K. Digal(2012), “A study of savings and Investment Behaviour of Individuals of individual Households –An empirical Evidence from Orissa” ,The International journal`s Research Journal of Economics and Business Studies, Vol No.2, No 1 (2012). Retrieved 18.10.2013 from theinternationaljournal.org/ojs/index.php?journal=rjebs&page=article&op=view&path%5B%5D=1363 3. Das, Sanjay Kanti (2012), “Middle Class Household’s Investment Behaviour: An Empirical Analysis”, Journal of Radix International Educational and Research Consortium, RIJBFA Volume 1, Issue 9(September 2012).Retrieved on 21.10.2013 from rierc.org/banking/paper37.pdf 4. Invest India Income and Saving Survey (2007).cambridgeforecast.wordpress/2007/08/01/invest-india-incomes-and-savings-survey-2007/ 5. Mohapatra, S.K. (23.09 2012). Indian Economy: Perils of Low Savings. Orissa POST: power post, Page.8, 23.09.2012, orissapost/epaper/230912/p8.htm 6. Mohapatra, S.K. (01.05 2014) Opinion: Savings as way forward. Orissa POST: power post, Page.8 orissapost/epaper/010514/p8.htm 7. Mohapatra, S.K. (2014) “A Study on Peril of Declining Savings in India”, Development Strategies and Innovation Dynamics for Sustainability, PP.111-123, authored by Dr S. K. Baral, published by AITBS INDIA, New Delhi, ISBN: 978-93-7473-560-2, 8. 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Reserve Bank of India (2013, “A Hand book of Statistics on the Indian Economy, 2013-14”. web link dbie.rbi.org.in)rbidocs.rbi.org.in/rdocs/Publications/PDFs/000HSE13120914FL.pdf 12. Shukla ,Rajesh(2007), “How India Earns, Spends and Saves” Max New York Life and NCAER Survey, web link thesuniljain/files/thirdparty/NCAER%20How%20India%20Earns%20Spends%20and%20Saves.pdf 13. Sood ,Puneet Bhushan and Yajulu Medury(2014), “Investment Preferences of Salaried Individuals towards Financial Products Towards Financial Product” .Retrieved 30.12.2014 from file:///C:/Users/Compaq/Downloads/paper-%20ijmbs%20(1).pdf 14. Sornaganesh,V and Karthikeyan(2014), “A Study on Preference of Investment-with special reference to salaried class people in Tuticorin Town”,International Journal Of Informative & Futuristic Research, Volume -1 Issue -9, May 2014-retrieved on 28012.2014 from ijifr/pdfsave/25-05-201488110-05-014448INVESTMENTSALARIEDPEOPLE%20a3a.pdf
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