This document analyzes investors' behavior when making investment decisions. It aims to understand how psychological factors like risk perception, risk propensity, and information asymmetry impact investment choices. A study model is developed to examine the effect of these independent variables on risk perception and investment decisions. The study finds that investor behavior depends on how risk is framed and how prone they are to taking risks. It concludes different investors have different investment styles based on these psychological factors. A survey was conducted of 60 investors in India to analyze how demographics, income, occupation, and other variables influence investment preferences and risk tolerance levels. The findings suggest risk aversion increases with age while income and investments are positively correlated. Occupation was also found to impact preferred investment aven

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An Analysis of Investors behavior while making investment decision
Abstract:
Every individual is different from others due to various factors which include
demographic factors, age, race and sex, education level, social and economic
background; same is the situation with the investors. The most critical challenge
faced by them is the investment decision; they act in a rational manner and usually
follow their instincts and emotional biases while making investment decisions. The
investigation of previous studies reveals the importance of various psychological
factors which affect their investment decision. Keeping this in view, a study model
has been developed to describe the impact of risk propensity, asymmetric information
and problem framing on investor’s behavior while making decisions through the
mediating role of risk perception; also it determines how much weight is attached to
each independent variable by the investors when they make their decisions. Overall
discussion concludes that the investor’s behavior depends on how the available
information is being presented to them and how much they are prone to taking risk
while making decisions; thus playing a significant role in determining the investment
style of an investor.
Key words: Risk perception Propensity Information asymmetry Investment decisions

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INTRODUCTION
In present day behavioral finance is becoming an integral part of decision making because it greatly
influences investor’s behavior regarding decision making process.
An investor is affected by various psychological and demographic factors while making investment
so a proper understanding of them and by what magnitude it effects is important. Better
understanding of behavioral finance will help the investors to select a better investment option.
The purpose of the analysis is to determine the investment behavior of investors and investment
preferences for the same. Investors perception will provide a way to accurately measure how the
investors think about the products and services provided by the company. Today’s trying economic
conditions have forced difficult decisions for companies. Most are making conservative decisions
that reflect a survival mode in the business operations. During these difficult times, understanding
what investors on an ongoing basis is critical for survival. Executives need a third party
understanding on where investor’s loyalties stand. More than ever management needs ongoing
feedback from the investors, partners and employees in order to continue to innovate and grow.
Objective of the Study
“The main objective of the project is to find out the needs of the current and future investors.”
For this analysis, customer perception and awareness level will be measured in important areas such
as:
 To understand in depth about different investment avenues available in India.
 To find out how investors get information about the various financial instruments.
 The type of financial instruments, they would prefer to invest.
 The duration for which they would prefer to keep their money invested.
 What are the factors that they consider before investing?
 To give a recommendations to the investors that where they should invest.
 To know the risk tolerance level of the individual investor and suggest a suitable portfolio.
 To develop a profile of sample Indian individual investor in terms of their demographics.
And demographics based on occupation of the sample investor.

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 To identify the objective of savings of an investor.
 To study the difference in pattern of investment between government and private
employees.
.Literature Review:
Literature suggests that major research in the area of investors’ behaviour has been done by
behavioural scientists such as Weber, Shiller and Shefrin. Shiller who strongly advocated that stock
market is governed by the market information which directly affects the behaviour of the investors.
Several studies have brought out the relationship between the demographics such as Gender, Age
and risk tolerance level of individuals. Of this the relationship between Age and risk tolerance level
has attracted much attention.
Horvath and Zuckerman suggested that one’s biological, demographic and socioeconomic
characteristics; together with his/her psychological makeup affects one’s risk tolerance level.
Malkiel suggested that an individual’s risk tolerance is related to his/her household situation,
lifecycle stage and subjective factors. Mittra discussed factors that were related to individuals risk
tolerance, which included years until retirement, knowledge sophistication, income and net worth.
Guiso, Jappelli and Terlizzese, Bajtelsmit and VenDerhei, Powell and Ansic, Jianakoplos and
Bernasek, Hariharan, Chapman and Domain, Hartog, Ferrer−I− Carbonell and Jonker concluded
that males are more risk tolerant than females.
Wallach and Kogan were perhaps the first to study the relationship between risk tolerance and age.
Cohn, Lewellen et.al found risky asset fraction of the portfolio to be positively correlated with
income and age and negatively correlated with marital status. Morin and Suarez found evidence of
increasing risk aversion with age although the households appear to become less risk averse as their
wealth increases. YOO found that the change in the risky asset holdings were not uniform. He
found individuals to increase their investments in risky assets throughout their working life time,
and decrease their risk exposure once they retire.
Lewellen et.al while identifying the systematic patterns of investment behaviour exhibited by
individuals found age and expressed risk taking propensities to be inversely related with major
shifts taking place at age 55 and beyond. Indian studies on individual investors' were mostly
confined to studies on share ownership, except a few. The RBI's survey of ownership of shares and
L.C. Gupta's enquiry into the ownership pattern of Industrial shares in India were a few in this
direction. The NCAER's studies brought out the frequent form of savings of individuals and the
components of financial investments of rural households. The Indian Shareowners Survey brought
out a volley of information on shareowners. Rajarajan V classified investors on the basis of their
demographics. He has also brought out the investors' characteristics on the basis of their investment
size. He found that the percentage of risky assets to total financial investments had declined as the
investor moves up through various stages in life cycle. Also investors' lifestyles based
characteristics has been identified.

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The above discussion presents a detailed picture about the various facets of risk studies that have
taken place in the past. In the present study, the findings of many of these studies are verified and
updated.
Research Methodology:
Sampling technique
Convenience sampling technique is used for collecting the data from different investors.
The investors are selected by the convenience sampling method. The selection of units from the
population based on their easy availability and accessibility to the researcher is known as
convenience sampling. Convenience sampling is at its best in surveys dealing with an
exploratory purpose for generating ideas and hypothesis.
Sampling unit:
The respondents are asked to fill out the questionnaires are the sampling units. These
comprise of employees of government employees, private employees, self employed,
professionals and other investors.
Sampling size:
The sample size is 60, which comprised of mainly people from different regions of Allahabad
and Lucknow due to time constraints.
Sampling area:
The area of the research is Allahabad and Lucknow.

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Primary Data:
Information is collected by conducting a survey by distributing a questionnaire to investors in
Lucknow and Allahabad. These 60 investors are of different age group, different occupation,
different income levels, and different qualifications. (A copy of the questionnaire is given in the last
as ANNEXURE 1).
Secondarydata:
This is done through various research paper and journals.
Dependent and Independent variable and ResearchHypothesis:
There are total four independent variables
Age group. 2. Occupation. 3. Qualification. 4. Annual income
Dependent variables like:
Level of risk tolerance
Percentage of income that can be invested
Time period that can be taken for investments
Investment preferences.
Hypothesis:
 Increase in Age decreases the Risk tolerance level.
 Income and investments are positively related.
 Investment preferences are affected by the occupation level.

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DATA ANALYSIS and INTERPRETATION:
This analysis is done on the basis of questionnaire which being filled by 60 respondents.
The questionnaire contains various questions on the investor’s financial experience, based on
these experiences an analysis is made to find out of investment pattern .
Table 1:
PARAMETER NO:OF INVESTORS PERCENTAGE
GENDER
MALE 42 70%
FEMALE 18 30%
TOTAL 60 100%
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 − 30 28 46.67%
BETWEEN 30 − 40 22 36.67%
ABOVE40 10 16.66%
TOTAL 60 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 31 51.67%
POST GRADUATES 20 33.33%
OTHERS 9 15%
TOTAL 60 100%
OCCUPATION
SALARIED 40 66.67%
BUSINESS 10 16.67%
PROFESSIONAL 10 16.66%
HOUSE WIFE 0 0%
RETIRED 0 0%
TOTAL 60 100%
ANNUALINCOME
BELOW Rs. 2,00,000 0 0%
Rs. 2,00,000 − 4,00,000 21 35%

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Rs. 4,00,000 − 6,00,000 30 50%
ABOVE Rs, 6,00,000 9 15%
TOTAL 60 100%
Table 1 shows that out of 60 respondents, 70 % are male because male are more dominant in
Indian family and take major investment decisions.
Major people whom I have surveyed are salaried class than business and lastly professionals.
When it comes to age major investors are of young age as compared to old. Major investors are
educated and thus more knowledgeable toward investment options.
Investors are of higher income group which give them the option of diversified investment and
thus analysis will be more wide and reliable.
Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
3
57
5
95
TOTAL 60 100
Above table shows that 95% respondents are not willing to lose their principle amount thus
people are less prone to risk.
Table 2.2 TIME PERIOD PREFERED TO INVEST
PARAMETER NO OF INVESTORS PERCENTAGE
SHORT TERM
MEDIM
LONG TERM
5
35
20
8.34
58.33
33.33
TOTAL 60 100
Major investors are mediocre investors and thus invest for a medium term investment to play
safe.

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Table 2.3 FREQUENCYOF MONITORING THE INVESTMENT
PARAMETER NO OF INVESTORS PERCENTAGE
DAILY 9 15
MONTHLY 20 33.33
OCCATIONALLY 26 43.37
OTHER 5 8.3
TOTAL 60 100
When we see frequency of monitoring, major respondents occasionally monitor their
investments.
Table 2.4 INVESTMENT IN EQUITYMARKET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
18
42
30
70
TOTAL 60 100
Generally people invest less in equity market as it requires more monitoring and it’s also volatile.
Table 2.5 FAMILYBUDGET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
24
36
40
60
TOTAL 60 100
As per above it can be interpreted generally people don’t have a formal budget.
Table 2.6 INVESTMENT TARGET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
28
32
46.67
53.33
TOTAL 60 100
As per analysis generally people have less investment target as they don’t have a formal budget.

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Table 2.7 FINANCIALADVISOR
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
8
52
13.33
86.67
TOTAL 60 100
People generally don’t make investment using financial advisor as they do investment through
the advice of sociable factors.
Table 3.1 SAVINGSOBJECTIVE
PARAMETER WEIGHTS RANKING
CHILDREN'S EDUCATION 26 1
RETIREMENT 14 2
HOME PURCHASE 10 3
CHILDREN'S MARRIAGE 8 4
OTHERS 2 5
TOTAL 60
It had been found major people do investment for the welfare of their family and than for
retirement benefits.
So it can be concluded that Indian mindsets is more prone to family welfare.
Table 3.2 PURPOSE BEHIND INVESTMENT
PARAMETER WEIGHTS RANK
WEALTH CREATION 12 4
TAX SAVING 14 3
EARN RETURNS 19 1
FUTURE EXPENDITURE 15 2
TOTAL 60
Above parameter show that major reason why people save is to get high return and also for tax
saving.

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Table 3.3 FACTORS CONSIDERING BEFORE INVESTING
PARAMETER WEIGHTS RANKING
SAFETY OF PRINCIPAL 17 1
LOW RISK 16 2
HIGH RETURNS 14 3
MATURITY PERIOD 13 4
TOTAL 60
And when we talk about factor considering investment than the major important factor is safety
and risk as I have surveyed generally middle class population.
TABLE 4: DEMOGRAPHICS BASED ON OCCUPATION
I. SALARIED
PARAMETER NO:OF - SALARIED PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 − 30 18 45%
BETWEEN 30 − 40 12 30%
ABOVE40 10 25%
TOTAL 40 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 19 47.5%
POST GRADUATES 15 37.5%
OTHERS 6 15%
TOTAL 40 100%
ANNUALINCOME
BELOW Rs. 2,00,000 0 0%
Rs. 2,00,000 − 4,00,000 16 40%
Rs. 4,00,000 − 6,00,000 20 50%
ABOVE Rs, 6,00,000 4 10%
TOTAL 40 100%

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II. Business:
PARAMETER NO:OF - BUSINESS PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 − 30 2 20%
BETWEEN 30 − 40 8 80%
ABOVE40 0 0%
TOTAL 10 100%
QUALIFICATION
0 0%UNDER GRADUATES
GRADUATES 6 60%
POST GRADUATES 2 20%
OTHERS 2 20%
TOTAL 10 100%
ANNUALINCOME
BELOW Rs. 2,00,000 0
Rs. 2,00,000 −
4,00,000 2 20%
Rs. 4,00,000 −
6,00,000 4 40%
ABOVE Rs, 6,00,000 4 40%
TOTAL 10 100%

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III. PROFESSIONAL
PARAMETER NO:OF - PROFESSIONAL PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 − 30 8 80%
BETWEEN 30 − 40 2 20%
ABOVE40 0 0%
TOTAL 10 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 6 60%
POST GRADUATES 3 30%
OTHERS 1 10%
TOTAL 10 100%
ANNUALINCOME
BELOW Rs. 2,00,000 0%
Rs. 2,00,000 −
4,00,000 3 30%
Rs. 4,00,000 −
6,00,000 6 60%
ABOVE Rs, 6,00,000 1 10%
TOTAL 10 100%
Here the assumption is that occupation derives investment avenues.
Table 5: INVESTMENT PREFERENCE BASED ON
OCCUPATION

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Table 5.2 Preferred investment avenues for salaried people
INVESTMENT
AVENUES RANK
LIFE INSURANCE 1
BANK FIXEDDEPOSITS
GOLD
2
GOLD 3
MUTUAL FUNDS 4
REAL ESTATE 5
POST OFFICESAVINGS 6
PPF 7
NSC 8
EQUITY SHARES 9
SAVINGSACCOUNT 10
Table 5.2 Preferred investment avenues for business people
INVESTMENT
AVENUES RANK
BANKFIXEDDEPOSITS 1
INSURANCE 2
REAL ESTATE 3
MUTUAL FUNDS 4
GOLD 5
EQUITY SHARES 6
CHIT FUNDS 7
POST OFFICESAVINGS 8
SAVINGSACCOUNT 9
NSC 10
TOTAL
Table 5.3 Preferred investment avenues for professionals

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INVESTMENT
AVENUES RANK
BANKFIXEDDEPOSITS 1
INSURANCE 2
GOLD 3
REAL ESTATE 4
POST OFFICESAVINGS 5
SAVINGSACCOUNT 6
MUTUAL FUNDS 7
PPF 8
BONDS 9
GOVT SECURITIES 10
TOTAL
From the analysis it can be found that occupation derive your investment options and
ranking for we can clearly see that salaried business and professional have all together different
ranking for investments because they have different risk ranking and different income sources.
So here we can say that occupation and investment are positively related and they have a
profound effect on the investment pattern.
.
Table 6: Finding relationship between age group and level of risk tolerance
Table 6.1 risk tolerance of age group 20 − 30
PARAMETER 20 − 30 AGE GROUP
NO OF
LEVEL OF RISK INVESTORS PERCENTAGE
LOW RISK 10 36%
MEDIUM RISK 12 43%
HIGH RISK 6 21%
TOTAL 28 100%

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Table 6.2 risk tolerance of age group 30 − 40
PARAMETER 30 − 40 AGE GROUP
NO OF
LEVEL OF RISK INVESTORS PERCENTAGE
LOW RISK 12 55%
MEDIUM RISK 7 32%
HIGH RISK 3 13%
TOTAL 22 100%
Table 6.3 risk tolerance of age group above 40
PARAMETER ABOVE40 AGE GROUP
LEVEL OF RISK NO OFINVESTORS PERCENTAGE
LOW RISK 7 70%
MEDIUM RISK 2 20%
HIGH RISK 1 10%
TOTAL 10 100%
From the analysis it can be seen that the age bracket 20-30 medium risk was high but as we see
when the age of respondent is increasing it is showing a fall in the medium risk in percentage term
but a high trend in the low risk category.
And there is a high percentage in lower age group and vice versa. Like its 10 percent at the age
group above 60 and 21 percentage at the age group 20 to 30 age bracket.
From the above it can be concluded that age and risk have a negative relationship.
Karl Pearson’s correlation coefficient is calculated, it is found to be −0.71 by which we can
conclude that there is a strong negative correlation between Age and Risk tolerance.

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Income and investment relationship:
From the table it’s been found that higher income people have a high budget of investment as well
as they are more risk prone as compared to the lower income group people or people have less
source so they invest less and what all they invest they invest in moderate securities.
Benefit of study:
This study will be helpful in understanding investor’s behavior and will also help in devising
portfolio according to the need of investors keeping in mind the occupation and income factors into
consideration.
Findings and conclusion:
Through this analysis it can be concluded that investment and income are positively related there is
also a inverse relationship between risk and age which can be verified by correlation factor.
Occupation and investment patterns are also closely related
This study also helps in understanding the investment patterns, type of investment avenues, and
difference between investment pattern of government, business class and professional people.

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