A Study on Individual Investors' Bias towards Investment Decision Making through the Concept of Neurofinance in NSIC Ltd.


Term Paper, 2020

56 Pages, Grade: 9.0


Excerpt

Table of contents

CHAPTER-I

INTRODUCTION

CHAPTER-II 15

INDUSTRY PROFILE

&

COMPANY PROFILE

CHAPTER -III 35

REVIEW OF LITERATURE

CHAPTER-IV 42

DATA ANALYSIS

AND

DATA INTERPRETATION

CHAPTER-V 53

FINDINGS, SUGESSTIONS AND CONCLUSIONS

BIBLOGRAPHY 56

CHAPTER-I

INTRODUCTION

Chapter-I

INTRODUCTION

1.1 .Introduction to the study:

Finance is the study of money and money market which includes anything from the interest rate on the saving account to stock market to the impact of new tax laws on a country. Finance has given us a means of analyzing financial products such as stocks, bonds and derivatives. Finance actually deals with investment.

Employment of the funds with an aim of getting returns on it. This activity is generally termed as investment. The investment of hard earned money is the decisive activity of every human being. The investment is the combination of the funds which have been saved from the current consumption with the hope that some benefits will be received in future. Thus it is a reward for waiting for money.

Investments are important because in today’s world, just earning money is not enough. You work hard for the money you earn. But that may not be adequate for you to lead a comfortable lifestyle or fulfill your dreams and goals. To do that, you need to make your money work hard for you as well. This is why we invest. Money lying idle in your bank account is an opportunity lost. You should invest that money smartly to get good returns out of it.

When it comes to investment especially for money in modern economic era, where money matters more than else in life, decisions really matters. Investment decision relate to the decisions made by the investor with respect to the amount of fund deployed in the investment

opportunities.

Investment decision making places an important role for any individual. The correct investment decision making is based on the decision tools. Investment decisions are often supported by decision tools. It is assumed that information structure and the factors in the market systematically influence individuals’ investment decisions as well as market outcomes. Investor market behavior derived from psychological principles of decision making to explain why people buy or sell stocks. These factors will focus upon how investors’ interpret and act on information to make investment decisions.

While making investment decision, the investors are required to make investment decision in a rational manner i.e, they should act on the available relevant information. But the investors are not always behaving in a rational manner. For instance if they can choose between different investment alternative, Eg. Different mutual funds they tend to chase for those funds that had the highest returns in the past period without having a guarantee for future returns.

The reason behind this variation is termed as Bias. Where it is termed as an illogical preference or prejudice. It’s a uniquely foible, and since investors’ are humans , they can be affected by it as well. Psychologist have identified many bias and any or all of them can cloud the judgment of the investors’. In short, bias is an irrational assumption or belief that wraps the ability to make a decision based on facts and evidences that doesn’t line up with that assumption.

A bias can be conscious or unconscious. When investors’ act upon them, they fail to observe evidence that contradicts their assumptions. Controlling such bias can allow the investor to reach an impartial decision based solely on the available data. And thus investors’ frequently commit mistakes while making investment decisions, most of the investors’ are not rational towards investment decision making. The investors’ usually don’t depend on the relevant information. Because the investors’ are influenced by the emotions and some psychological factors and thus investors’ posses irrational decision making towards investment.

Investors’ bias plays an important role in investment decision making because the bias is the combination of the emotional and psychological factors which makes the investor not to rely on the available information which certainly leads the investor to the irrational manner towards the investment decision making. Finance also looks at the investors’ and notes that they are not behaving according to the theories like prospect theory and etc., suggest they should. A new trend in the finance which is certainly in an embryonic stage and is termed as “NEUROFINANCE”. Neurofinance is the mixture of the finance, psychology and neurosciences. Neurofinance uses the insights of the psychology such as knowledge about the bias as to understand and possibly correct mistakes committed by the individual investors’ towards their investment decision making. It tries to make scenes of the facts on the investors’ bias towards investment decision making which indeed makes them behave irrational towards investment decision making.

1.2. Need of the study:

a) Investment decision making plays a significant role to the investors, because the investors’ mostly don’t act upon the relevant information and yet end up making irrational decisions.
b) This is because the individual investors’ are influenced by the bias such as confirmative bias, overconfident bias, home bias, Availability bias, Myopic loss aversion bias, Anchoring bias and etc.,
c) The main purpose of the study is to make individual investors’ understand how these bias are being influenced in their investment decision making through the concept of the neurofinance.
d) To make the individual investors’ aware of these bias which are basically emotional and psychological factors; and which are actively getting influenced by them while making their investment decisions.
e) The neurofinance is relatively a new research field where in it strives to understand investment decision making by combining the insights of the psychology, finance, and neuroscience.
f) The presentation of the literature on the neurofinance helps the investment advisory services to know precisely about their clients.
g) With this the advisors get to know about behavior of the investor prior to making the choice of the investment.
h) Such that the investment advisory services can make out the best investment strategy for the client that is the investors’ which can result them with optimal returns.

1.3. Objectives of the study:

a) To determine the psychological factors which plays an important role behind the individual investors’ bias.
b) To understand the influences of the individual investors’ bias,which can help the individual investors’ to avoid pitfalls while making investment decisions.
c) To create a literature on the research field of neurofinance.

1.4. Scope of the study:

a) The study has been conducted with a view to understand the individual investors’ bias towards investment decision making through the concept of the neurofinance.
b) This study will make us understand the influence of few bias which are particularly mentioned; on the individual investors’ decision making on investments.
c) This study is being swot by the concept of the neurofinance, which strives to understand the behavior of the investors’ prior making investment decision choices
d) It also helps us to know how these psychological bias influences are being affected on their investment decision.
e) This study is very useful to the investment advisory services where in they could make out the best investment strategies to the clients which results them in the optimum returns.
f) This study is limited to National small industries corporation limited (NSIC LTD.).

1.5. Methodology of the study:

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically.

Defination:

Redman &Moray defined research as “A systematized effort to gain new knowledge .”

The study is based on the primary and the secondary data.

Primary data:

The primary data is gathered through personal interaction with the officials and the employees. The observation method is employed by drawing certain inferences. For eliciting the opinion on the individual investors’ bias towards investment decision making through the concept of the neurofinance, an unstructured questionnaire is canvassed among the employees in NSIC Ltd.

The primary data is collected from the respondents of the study directly know their opinion about the individual investors’ bias towards investment decision making through the concept of the neurofinance in NSIC ltd.

Questionnaire: A questionnaire has been prepared and distributed among the respondents (employees) for both executives and non-executives.

Interview: Personal interview and the interaction with the respondents (employees).

Observation: By observing the individual investors’ in NSIC LTD.

Secondary data:

The secondary data is that which have been already collected by someone or else which have been passed through statistical data.

Various sources are available namely documents, books, magazines, journals, articles etc., and also collected from various files, records of the NSIC LTD.

SELECTION OF THE MEASUREMENT TECNIQUE:

According to the question there are different selection criteria and mostly taken are from

1. Strongly agree
2. Agree
3. Neutral
4. Disagree
5. Strongly disagree

and

1. Yes
2. No

SAMPLING :

Population- employees of the NSIC, Hyderabad.

Sample size – 200 individual investors’(employees of the NSIC Ltd.) from all categories.

ANALYTICAL APPROACH:

The calculations are performed as per the information collected from the respondents and the data is presented in the bar diagrams which shows the percentage responses received from the questionnaire.

1.6. Limitation of the study:

The study is carefully designed, it is not without the limitations; and they are as follows:

a) The study is based on a sample size of the 200 members and hence the interpretations are based on the approximations, perhaps larger sample size would have provided information closer to the accurate value.
b) Only few bias are being mentioned in the study such that the information was only gathered till point.
c) The percentages and averages are adjusted to the nearest decimal point.
d) Due to the limited time period of 45 days the expected information wasn’t collected.
e) Unwillingness of the respondent to provide the information properly.

CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

CHAPTER-II

2.1.Industry Profile

History of MSME:

Micro small medium entreprises:

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs’ not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs’ are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

Khadi is the proud legacy of our national freedom movement and the father of the nation. Khadi and Village Industries (KVI) are two national heritages of India. One of the most significant aspects of KVI in Indian economy is that it creates employment at a very low per capita investment. The KVI Sector not only serves the basic needs of processed goods of the vast rural sector of the country, but also provides sustainable employment to rural artisans. KVI today represent an exquisite, heritage product, which is 'ethnic' as well as ethical. It has a potentially strong clientele among the middle and upper echelons of the society.

Coir Industry is an agro-based traditional industry, which originated in the state of Kerala and proliferated to the other coconut producing states like Tamil Nadu, Karnataka, Andhra Pradesh, Orissa, West Bengal, Maharashtra, Assam, Tripura, etc. It is an export oriented industry and having greater potential to enhance exports by value addition through technological interventions and diversified products like Coir Geotextiles etc. The acceptability of Coir products has increased rapidly due to its 'environment friendly' image.

Ministry of Micro, Small & Medium Enterprises (M/o MSME) envision a vibrant MSME sector by promoting growth and development of the MSME Sector, including Khadi, Village and Coir Industries, in cooperation with concerned Ministries/Departments, State Governments and other Stakeholders, through providing support to existing enterprises and encouraging creation of new enterprises.

The Micro; Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to address policy issues affecting MSMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the development of these enterprises as also enhance their competitiveness. It provides the first-ever legal framework for recognition of the concept of "enterprise" which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, micro, small and medium. The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions. Establishment of specific funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes/programmes for this purpose, progressive credit policies and practices, preference in Government procurements to products and services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and assurance of a scheme for easing the closure of business by these enterprises are some of the other features of the Act.

On 9 May 2007, subsequent to an amendment of the Government of India (Allocation of Business) Rules, 1961, erestwhile Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises (M/o MSME). This Ministry now designs policies and promotes/ facilitates programmes, projects and schemes and monitors their implementation with a view to assisting MSMEs and help them to scale up.

The primary responsibility of promotion and development of MSMEs is of the State Governments. However, the Government of India, supplements the efforts of the State Governments through various initiatives. The role of the M/o MSME and its organizations is to assist the States in their efforts to encourage entrepreneurship, employment and livelihood opportunities and enhance the competitiveness of MSMEs in the changed economic scenario. The schemes/ programmes undertaken by the Ministry and its organizations seek to facilitate/provide: i) adequate flow of credit from financial institutions/banks; ii) support for technology upgradation and modernization; iii) integrated infrastructural facilities; iv) modern testing facilities and quality certification; v) access to modern management practices; vi) entrepreneurship development and skill upgradation through appropriate training facilities; vii) support for product development, design intervention and packaging; viii) welfare of artisans and workers; ix) assistance for better access to domestic and export markets and x) cluster-wise measures to promote capacity-building and empowerment of the units and their collectives.

Organizational Setup

The M/o MSME is having two Divisions called Small & Medium Enterprises (SME) Division and Agro & Rural Industry (ARI) Division. The SME Division is allocated the work, inter- alia, of administration, vigilance and administrative supervision of the National Small Industries Corporation (NSIC) Ltd., a public sector enterprise and the three autonomous national level entrepreneurship development/training originations. The Division is also responsible for implementation of the schemes relating to Performance and Credit Rating and Assistance to Training Institution, among others. SME Division is also responsible for preparation and monitoring of Results- Framework Document (RFD) as introduced in 2009 by the Cabinet Secretariat under Performance Monitoring and Evaluation System (PMES). The ARI Division looks after the administration of two statutory bodies viz. the Khadi and Village Industries Commission (KVIC), Coir Board and a newly created organization called Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises the implementation of the Prime Minister's Employment Generation Programme (PMEGP).

The Implementation of policies and various programmes schemes for providing infrastructure and support services to MSME's is undertaken through its attached office, namely the Office of the Development Commissioner (010 DC (MSME)), National Small Industries Corporation (NSIC), Khadi and Village Industries Commission (KVIC); the Coir Board, and three training institutes viz., National Institute for Entrepreneurship and Small Business Development (NIESBUD), NOIDA, National Institute for Micro, Small and Medium Enterprises (NI-MSME), Hyderabad, Indian Institute of Entrepreneurship (lIE), Guwahati and Mahatma Gandhi Institute for Rural Industrialization (MGIRI), Wardha a society registered under Societies Registration Act, 1860.

The National Board for Micro, Small and Medium Enterprises (NBMSME) was established by the Government under the Micro, Small and Medium Enterprises Development Act, 2006 and Rules made there under. It examines the factors affecting promotion and development of MSME, reviews existing policies and programmes and make recommendations to the Government in formulating the policies and programmes for the growth of MSME.

Office of the Development Commissioner [MSME]

The Micro, Small and Medium Enterprises- Development Organisation (MSME-DO) is headed by the Additional Secretary & Development Commissioner (MSME). The Office of the Development Commissioner (Micro, Small & Medium Enterprises) assists the Ministry in formulating, co-ordinating, implementing and monitoring different policies and programmes for the promotion and development of MSMEs in the country. In addition, it provides a comprehensive range of common facilities, technology support services, marketing assistance, etc. through its network of 30 Micro, Small and Medium Enterprises-Development Institutes (MSME-Dls); 28 Branch MSME-Dls; 4 MSME Testing Centres (MSME-TCs); 7 MSME-Testing Stations (MSME-TSs); 2 MSME-Training Institutes (MSME-Tls); and 1 MSME-Technology Development Center-Hand Tools (MSME-TDC-Hand Tools). The % DC (MSME) also operates a network of Tool Rooms and Technology Development Centres (including 2 Footwear Training Institutes) which are autonomous bodies registered as Societies under the Societies Act. The Office implements a number of schemes for the MSME sector, the details of which have been duly incorporated in the booklet.

MSME sector, apart from including the constituents of SSI and Micro and Small Enterprises (MSE) sector, has also added in its fold, the enterprises falling under the Khadi and Village Industries Commission (KVIC/ KVIB) , the COIR Board, the Handloom, the Handicrafts, Retail trade etc

Different Segment of MSME

a. Segment of MSME.
b. SSI/MSE Sector.
c. Khadi and Village Commission.
d. Coir Board.
e. Handloom.
f. Handicraft.

Beside SSI/MSE, the other segments are briefly described in below:

a) Khadi and Village Commission (KVIC/KVIB): Khadi is the proud legacy of our national freedom movement and the father of the nation. Khadi and Village Industries (KVI) are two national heritages of India. One of the most significant aspects of KVI in Indian economy is that it creates employment at a very low per capita investment. The KVI Sector not only serves the basic needs of processed goods of the vast rural sector of the country but also provides sustainable employment to rural artisans. KVI today represent an exquisite, heritage product, which is ‗ethnic‘ as well as ethical. It has a potentially strong clientele among the middle and upper echelons of the society. The Khadi & Village Industries Commission (KVIC), established under the Khadi and Village Industries Commission Act, 1956, is a statutory organization engaged in promoting and developing khadi and village industries for providing employment opportunities in rural areas, thereby strengthening the rural economy. The KVIC has been identified as one of the major organizations in the decentralized sector for generating sustainable rural nonfarm employment opportunities at low per capita investment. This also helps in checking migration of rural population to urban areas in search of the employment opportunities.
b) Coir Board: Coir Industry is an agro-based traditional industry, which originated in the state of Kerala and proliferated to the other coconut producing states like Tamil Nadu, Karnataka, Andhra Pradesh, Orissa, West Bengal, Maharashtra, Assam, Tripura, etc. It is an export oriented industry and having greater potential to enhance exports by value addition through technological interventions and diversified products like Coir Geo textiles etc. The acceptability of Coir products has increased rapidly due to its ‗environment friendly‘ image. The Coir Board is a statutory body established under the Coir Industry Act, 1953 for promoting overall sustainable development of the coir industry and improving the living conditions of the workers engaged in this traditional industry. The activities of the Board for development of coir industries, inter-alia, include undertaking scientific, technological and economic research and development activities; developing new products and designs; and marketing of coir and coir products in India and abroad. It also promotes co-operative organizations among producers of husks, coir fibre, coir yarn and manufacturers of coir products; ensuring remunerative returns to producers and manufacturers. The Board has promoted two research institutes namely; Central Coir Research Institute (CCRI), Kalavoor, Alleppey, and Central Institute of Coir Technology (CICT), Bengaluru for undertaking research and development activities on different aspects of coir industry, which is one of the major agro based rural industries in the country. c) Handloom: The handloom industry occupies an important place in the national economy. It is traditional, rural and semi-urban cottage industry and is highly labour intensive. In India North East Region handloom weaving may be regarded as the largest cottage industry. It is a cast less, class less craft in the region. The region has the highest concentration of handloom in the country. A wide range of products are available in this industry and they vary from state to state. In Assam Mekhala Chandar, Dhoti, Gamucha etc are accounts for seventy percent of the total production of the handloom sector. In Arunachal Pradesh local dress ―Gala and Galuk‖ constitute the bulk of production. In this state weaving is comparatively limited to the Adis, Mishmis, Apatani and Buddhist tribes. In Manipur seventy percent of the handloom products comprises of Phanek and Scarf/Shawl. In Tripura about ninety percent of the output is Sari and Gamucha, in Mizoram it is the Mizo ―Puna‖.

West Bengal has rich tradition in Handloom Weaving. It is a part of our cultural heritage. The textile products of Bengal have attracted not only national but also worldwide attention and bear the timeless legacy of our cultural heritage. ‗Jamdani‘ and ‗Tangail‘ are two pioneer sarees in the field of heritage handloom products of Bengal handloom. 'Jamdani' - the great characteristic of fine art in hand weaving derived from a "PERSION" word 'JAM' meaning a 'cup' and 'DANI' denotes the ‗container‘. It may be considered as a textile of excellence for its super fine qualities in the fifteenth and sixteenth centuries. Excellence in weaving lies in the virtuosity of forms drawn from the social, religious and natural environment and translated through a particular technique and the weaver's sensitivity to create a new art form. Another product 'Tangail' was originated from Tangail, a district of present Bengladesh. Previously it was named as "Begum Bahar" where silk warp and cotton weft were used. Later on, both cotton warp and weft were in vogue. The weaver mainly of 'BASAK' community who migrated from Tangail district before partition of our country and settled in 'Katwa' Dhatrigram Tamaghata, Samudragarh, area in Burdwan district. The Silks of Bengal were much acclaimed the world over since ancient times. The most well known Bengal silk saree which carry its popular name is Baluchari saree - a production of exclusive design and fabulous weaving technique. A revival in recent time of both the Baluchari and another outstanding traditional Bengal saree - "Daccai" has lead to nationwide and world wide popularity and interest in Bengal silks. Like silks, cotton sarees are also woven in a fascinating and exquisite range. Handloom still remains the great employer of rural sector in Bengal. 3.5 lakhs handlooms exist in West Bengal till date. Santipur, Fulia in Nadia district, Dhaniakhali, Begampur in Hooghly district, Samudragarh, Dhatrigram, Katwa, Ketugram in Burdwan district, Bishnupur in Bankura district are the mainly handloom concentrated areas in the state of West Bengal. d) Handicraft: India is one of the important suppliers of handicrafts to the world market. The Indian handicrafts industry is highly labour intensive cottage based industry and decentralized, being spread all over the country in rural and urban areas. Numerous artisans are engaged in crafts work on part-time basis. The industry provides a large number of employment (including those in carpet trade), which include a large number of women and people belonging to the weaker sections of the society. A wide range of handicrafts are produced all over India. Few of them are art metal ware / Electroplated nickel silver (EPNS) ware, wood carvings and other wooden art wares, imitation jewellery, hand printed textiles, shawls as art wares, embroidered goods, lace and lace goods, toys, dolls, crafts made of leather, lacquer ware, marble crafts etc. Although it is difficult to limit a specific place for the particular craft, but the following places are reputed for their particular crafts in India

[...]

Excerpt out of 56 pages

Details

Title
A Study on Individual Investors' Bias towards Investment Decision Making through the Concept of Neurofinance in NSIC Ltd.
Course
MBA
Grade
9.0
Author
Year
2020
Pages
56
Catalog Number
V1034592
ISBN (eBook)
9783346462039
ISBN (Book)
9783346462046
Language
English
Tags
investment, decision making, Neuro Finance, NSIC
Quote paper
Vara Lakshmi Thavva (Author), 2020, A Study on Individual Investors' Bias towards Investment Decision Making through the Concept of Neurofinance in NSIC Ltd., Munich, GRIN Verlag, https://www.grin.com/document/1034592

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