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I
“A STUDY ON INVESTORS ATTITUDE AND KNOWLEDGE TOWARDS INVESTMENT OPTIONS AVAILABEL IN INDIA – WITH SPECIAL REFERENCE TO UAE BASED NRIs” PROJECT REPORT SUBMITTED TO THE BIRLA INSTITUTE OF TECHNOLOGY, RANCHI FOR THE PARTIAL FULFILLMENT OF DEGREE OF MASTER OF BUSINESS ADMINSTRATION BY VENU.T MBA/8010/10 Under the Supervision of Mr. Soofi Anwar
BIRLA INSTITUTE OF TECHNOLOGY, INTERNATIONAL CENTER RAK, UAE June 2012
I
DECLARATION
This is to certify that the present report on “INVESTORS ATTITUDE AND KNOWLEDGE TOWARDS INVESTMENT OPTIONS AVAILABEL IN INDIA – WITH SPECIAL REFERENCE TO UAE BASED NRIs” is based on my original work and data collected and indebtedness to other works/publications has been duly acknowledged at the relevant places. It has not been submitted in part or full for any other diploma or degree of any other university
(signature)
(Venu.T)
II
CERTIFICATE
This is to certify that the project entitled “A Study on Investors Attitude and Knowledge Towards Investment Options Available In India - With Special reference to UAE based NRIs” is the project work carried out by Venu.T, MBA/8010/10 of MASTER OF BUSINESS ADMINISTRATION, Department of Management, Birla Institute of Technology, International Center, Ras Al Khaimah, during the academic period (2010-2012), in partial fulfillment of the requirements, as per subject code MBA 4004 for the award of degree of MASTER OF BUSINESS ADMINISTRATION.
Signature of the Guide
Signature of the H.O.D
III
ACKNOWLEDGMENT
First of all immensely and wholeheartedly I thank god for giving me this opportunity for successful completion of my project work and also I thank management of “ARC International – Middle East” for giving me a chance for doing this course. I extend my thanks to our respected Sr. Lecturer “Mr. Soofi Anwar” for permitting me to take up this project work and guide for project work, for his continuous and valuable information, rendered to me in completing my project work with in allotted time period. I wish to express my sincere thanks to “Dr. Durga Prasad”, for
his
patience, valuable inputs and instincts support without which the project work would not have completed. I am extremely indebted “Mr.Venu Madhav” – Area Manager (AIME) for his invaluable support and motivation and also I thank my “family members” for their wishes and blessings for successful completion of this project work. Once again, I take this opportunity to thank each and every person, who direct or indirectly helped me for the successful completion of this project work.
Venu .T
Table of Contents
IV
Table of Contents
Page
List of Figures
viii
List of Tables
ix
1
Introduction 1.1
Introduction to Study
1
1.2
Investors Attitude towards Investments
2
1.3
Investors Attitude towards Risk
3
1.4
Non-Resident Indian (NRI)
4
1.4.1
Person of Indian Origin (PIO)
4
1.4.2
Overseas Corporate Body (OCB)
4
1.5
Investment Options Available in India for NRIs
5
2
Research Design 2.1
Title of the Dissertation
6
2.2
Statement Of the Problem
6
2.3
Scope Of the Study
7
2.4
Objective Of the Study
7
2.5
Methodology Of the Study
7
2.5.1
Research Design
7
2.5.2
Sampling Design
8
2.5.3
Collection Of Data
8
2.5.4
Analysis Of Data
8
2.6
Significance Of the Study
9
2.7
Limitations Of the Study
9
3
Literature Review 3.1
What is Investment
10
3.1.1
Financial & Economic Meaning Of Investment
10
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Table of Contents
V
3.2
Why Investments are Important
11
3.2.1 3.2.2
Longer Life Expectancy or Retirement Increasing Rates Of Taxation
3.2.3
Interest Rates
12
3.2.4
Inflation
12
3.2.5
Income
13
3.2.6
Investment Channels
13
3.3
Elements Of Investment
13
3.3.1
Return
14
3.3.2
Risk
14
3.3.3
Relationship Of Risk & Return
15
3.3.4
Time
15
3.4
Types Of Investments
16
3.4.1
Bank Deposits
16
3.4.1a
Current Deposits/Accounts
16
3.4.1b
Saving Deposits / Accounts
16
3.4.1c
Recurring Deposits / Accounts
17
3.4.1d 3.4.2
Fixed Deposits Accounts / Term Accounts Fixed Deposit Schemes In Companies
3.4.3
Post-office Schemes
18
3.4.4
Stocks / Shares
19
3.4.4a
Common Stock
20
3.4.4b
Preferred Stock
20
3.4.4c
Convertible Preferential Stock
20
3.4.4d
Bonds
21
3.4.4e
Debentures
22
3.4.4f
Mutual Funds
22
3.4.5
Life Insurance
23
Planning
for
11 12
Deposit
17 18
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Table of Contents
VI
3.4.6
Real Estate
24
3.4.6a
Real Estate Investment Trusts (REITs)
24
3.4.7
Gold Investment
25
3.5
Factors favorable for Investment in India
25
3.5.1
Legal Safeguards
25
3.5.2
Well organized Monitory System
26
3.5.3
Existence
of
Financial
Institutions
to
27
encourage Savings 3.6
Features Of an Investment Program
27
3.6.1
Safety of Principal
27
3.6.2
Liquidity
27
3.6.3
Income stability
27
3.6.4
Appreciation and purchasing power stability
28
3.6.5
Legality and freedom from care
28
3.6.6
Tangibility
28
3.7
Classification of Investors
29
3.8
Non-Resident Indian (NRI)
31
3.9
Financial Advisors
32
3.10
Investment Opportunities for NRIs
33
3.11
Investment Options in India for NRIs
34
3.11.1
Ordinary Non-Resident Account in Rupees
34
(NRO) 3.11.2
Non-Resident (External) Account (NRE)
34
3.11.3
Foreign
36
Currency
Non-Resident
Account
(FCNR) 3.11.4
Term Deposit Accounts
37
3.11.5
Portfolio Investment Schedule (PIS)
37
3.11.6
Unit Deposit
38
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Table of Contents
VII
3.11.7
Equities
39
3.11.8
Bonds
39
3.11.9
24% and 40% Schemes
40
3.11.10
How can an NRI invest / trade in Indian Stock
40
Markets? 3.11.11
Immovable Property
44
3.12
Different Tax Benefits available to NRIs
48
3.13
Tax Provisions and Concessions for NRIs
49
3.13.1
Income Tax
49
3.13.2
Filing Returns
50
3.13.3
Provisions
51
3.13.4
Investing and Savings
4
Analysis and Interpretation
5
Findings, Suggestions & Conclusion
54
5.1
Findings
97
5.1.1
Investment Portfolio of Investors
98
5.1.2
Inter-relationship between Investment Preferences
98
5.2
Suggestions
99
Conclusion
102
6 Appendices
Appendix A : Questionnaire Bibliography
103 107
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
List of Tables
IX
List of Tables
Page
Table 2.1
Types of Investors (Based on Risk)
30
Table 2.2
Types of Investors (Based on Income)
31
Table 4.1
Age of Respondents
55
Table 4.2
Employment Status
57
Table 4.3
Income wise Classification
59
Table 4.4
Saving Objective
61
Table 4.5
Investment Objective
63
Table 4.6
Frequency of Investment in India
65
Table 4.7
Financial Advisor
67
Table 4.8
Who has been the Financial Advisors
69
Table 4.9
Investment Portfolio of the Respondents
71
Table 4.10
74
Table 4.11
NRIs Awareness level towards the various investments in India Level of Satisfaction with the Investment Made
Table 4.12
Investment Experience
79
Table 4.13
Risk wise Classification
81
Table 4.14
83
Table 4.15
Options on the Comfort ability Level in the Decline Value of Investments for Higher Returns Withdrawals from the Investment Account
Table 4.16
Relationship between Age Group & Risk Profile
87
Table 4.17
Relationship between Income & Frequency of Investment Relationship between Income &risk profiles
89
Relation between Occupation & frequency of investment. Relation between Occupation & Risk Profile
93
Table 4.18 Table 4.19 Table 4.20
78
86
91
95
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
List of Figures
VIII
List of Figures
Page
Figure 4.1
Age of Respondents
55
Figure 4.2
Employment Status
57
Figure 4.3
Income wise Classification
59
Figure 4.4
Saving Objective
61
Figure 4.5
Investment Objective
63
Figure 4.6
Frequency of Investment in India
65
Figure 4.7
Financial Advisor
67
Figure 4.8
Who has been the Financial Advisors
69
Figure 4.9
Investment Portfolio of the Respondents
71
Figure 4.10
NRIs Awareness level investments in India
Figure 4.11
Level of Satisfaction with the Investment Made
77
Figure 4.12
Investment Experience
79
Figure 4.13
Risk wise Classification
81
Figure 4.14
Options on the Comfort ability Level in the Decline Value of Investments for Higher Returns
83
Figure 4.15
Withdrawals from the Investment Account
85
towards
the
various
75
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Introduction
1
CHAPTER- 1 INTRODUCTION 1.1
Introduction to the Study
Source: http://www.oifc.in (overseas Indian Facilitation Centre)
Volatile global markets, risk aversion, Euro zone sovereignty issues, Greek debt, rupee depreciation; these are terms that the investors all over the globe have become accustomed to these days. With equities markets giving negative returns all over the globe and the rupee depreciating by over 12% to the USD, 6% against the Euro and over 15% against the AED, the major question crossing minds of all NRI’s, PIO’s and OCI’s is “Is this the best time to invest in India?” The
Indian
stock
markets
because
of
several
reasons
have
underperformed the global markets as well as the emerging markets to a certain extend because of which investors are seeing negative returns, but if an investor has medium to long term view then this is the best time to invest in India. The Reserve bank of India has already given signs that interest rates in India have already peaked and if the inflation rate stabilize and start to reduce a bit the Reserve bank of India will start reducing rates which in turn will push the bond prices up. Looking at these scenarios NRI’s have lot of investment opportunities depending on their budget and the time frame they can remain invested for. Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Introduction
2
presents a plethora of avenues to the investors. Though certainly not the best or deepest of the markets in the world, it has reasonable options for an ordinary man to invest his savings. One needs to invest to and earn return on your idle resources and generate a specified sum of money for a specific goal in life and make a provision for an uncertain future. One of the important reasons why one needs to invest wisely is to meet the cost of inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it cost to buy the goods and services you need to live. Inflation causes money to loss value because it will not buy the same amount of a good or service in the future as it does now or did in the past. The sooner one starts investing, the better. By investing early you allow your investments more time to grow, where by the concept of compounding increases your income, by accumulating the principle and the interest or dividend earned on it, year after year. The three golden rules for all investors are: Invest early Invest regularly Invest for long-term and not for short-term This survey will also help to understand the investors facets before investing in any of the investment tools and thus to scrutinize the important aspects of the investors before investing that further helped in analyzing the relation between the features of the products and the investors requirements. 1.2
Investors Attitude towards Investments
Investment and savings attitudes and behavior are influenced by the structure, complexity, transparency and perceived past and future performance of different kinds of investment options; the general lack of Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Introduction
3
independent financial advice; the recent superior performance of property investment; perceptions and personal tolerance of risk; the often low level of financial literacy about products other than property; the nature of the information people use when making financial decisions; the personal or family experience people have with investment; a general wish to have personal control over the investment and trust in the advice of friends and family over unknown professional advisors. Consumer decisions on saving are likely to be influenced by new or proposed changes in the investment environment. The application of lower taxes to earnings in managed funds, and forthcoming regulatory changes aimed at improving disclosure and prudential arrangements applying to financial products, providers and advisors are also likely to have an impact. 1.3
Investors Attitude towards Risk
There general consensus among NRI investors is that most of them are unwilling to take much risk with their money. This is the case even over the long term (five years or more). The most common reasons cited for being averse to taking risks included the responsibility of raising a family and taking on large financial commitments such as a mortgage. However, some of the investors were willing to take higher risks with their money to give themselves the chance of making higher returns. These participants tended to be young and single or higher earners. When it came to considering risk as a factor in financial decision-making, views are mixed. Some investors would not consider taking out anything more risky than a savings account; their sole focus, therefore, would be on the level of return available from savings accounts. Other class of
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Introduction
4
investors felt it was important to consider the potential returns whatever the product. 1.4
Non-Resident Indian (NRI)
An Indian abroad, popularly known as an NRI. NRI definitions under FEMA (Foreign Exchange Management Act, 1999): “A person resident outside India who is either a citizen of India or a person of Indian Origin” Recently RBI has clarified that students studying abroad also be treated as NRIs under FEMA and accordingly be eligible for foreign investments and NRE/FCNR accounts. 1.4.1
Person of Indian Origin (PIO)
Includes a person being a citizen of any country other than Pakistan and Bangladesh who: a.
Held an Indian passport at any time or
b.
Himself or either of his parents or any of his grandparents were citizens of India, or
c. 1.4.2
Is a spouse of an Indian Citizen. Overseas Corporate Body (OCB)
Means a Company, partnership Firm, Society etc… wherein 60% or more ownership lies with NRIs or a trust wherein 60% or more financial interest is irrevocably held by NRIs.. The tax free environs of the UAE are one of the major driving forces for Indians to settle down in the country. But Non- Resident Indians (NRI’s) need to keep in mind that they are still liable for taxes on certain investments back home. This applies to investments in shares, property, debentures and deposits, if the overall amount exceeds the exemption Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Introduction
5
limit of Rs. 160,000 (around Dhs. 13,000). There are some benefits for NRI’s which can ease the burden of handing over hard-earned money to the tax office back home. 1.5
Investment options available for NRIs
NRIs can invest in:
Bank Deposits
Secondary
markets
through
Portfolio
investment
in
equity
shares/convertible debentures.
New issues (shares/convertible debentures).
Non-convertible debentures .
Mutual
funds
provided
that
amount
is
invested
out
of
RE/FCNR/NRO account or by inward remittance.
Domestic (NRO) funds through deposits in Indian companies (including Non-Banking Finance Companies if they are registered with Reserve Bank of India) on non-repatriation basis up to 3 years subject to certain formalities to be completed by the concerned company.
Bonds provided that amount is invested out of NRE/FCNR/NRO account or by inward remittance.
Proprietary or partnership concern in India.
Immovable property provided that the amount is not invested for the purchase of agricultural land, plantation property or farm house and investments are made from fresh inward remittance or existing nonresident account.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
6
Research Design
CHAPTER- 2 Research Design 2.1 Title of the Dissertation The title of the Dissertation is “investor’s Attitude and Knowledge towards Investment Options available in India – With Special reference to UAE based NRIs” 2.2 Statement of the Problem The particular topic is mainly selected to analyze “Investor’s attitude and knowledge towards investment options available in India - with special reference to UAE based NRI’s”.
The comprehensive statement of the
problem can thus be stated as “Investor’s options in India- a study about the attitudes of the NRI’s of UAE and investment options in India”. This analysis was carried out to give more knowledge and broader view to the NRI's about the available investment options back home. As the NRIs visit their home country only for a short period of time and mostly once in a year, so they are not familiar and are also not well educated about the various options in which they can invest in. Their attitudes towards investments are guided by so many external factors and once they decide to invest, the major problem starts with the lack of proper agency (financial advisor/ consultant) to guide the investors according to their preference. If at all the NRIs decide to invest, they take a risk of losing their hard earned money. Hence it is very important that the NRIs knowledge about the investment options available in India are broadened and thus gaining a positive attitude towards the investment alternatives.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
7
Research Design
2.3 Scope of the Study The scope of the study was limited to the U.A.E based NRI’s who have invested in India. The study was conducted on 200 respondents. 2.4 Objectives of the Study 1.
To study the awareness level of the investors about the various investment affairs in India.
2.
To analyze the attitude of the investors towards various investment alternatives.
3.
To study the factors which influence the investment decisions of investors.
4.
To examine the regularity of investment of the investor in UAE.
5.
To analyze the risk-return preference of investors in investment.
6.
To identify the problems faced by NRI’s in selecting suitable investments options.
2.5 Methodology of the Study 2.5.1
Research Design
Research design stands for advance planning of the methods to be adopted for collecting the relevant data and the techniques to be used in analysis, keeping in view the objectives of the research and availability of time. Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of this research is description of state of affairs as it exists at present. In this survey the design used is descriptive in nature. The information is collected from the individuals and analyzed with the help of different statistical tools, for describing the relationship between various types of Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
8
Research Design
variables, pertaining to different investment options. Moreover Cross table Analysis has been done for processing the data and information is derived to meet the objectives of the study. 2.5.2
Sampling Design
The study was based on primary as well as secondary data. The primary data for this study was collected from 200 NRI’s from UAE. The study was conducted in the month of April 2012 to May 2012. 2.5.3
Collection of Data
A pretested schedule was used to collect data from respondents. Data such as awareness about investment options in India, attitudes towards investment, risk return preferences, factors which influence the investment decisions etc. were collected from respondents in UAE through questionnaires. The secondary data for this study were collected from magazines journals research reports publishing by various agencies, investment etc. 2.5.4
Analysis of Data
The collected data were analyzed with the help of scientific statistical tools such as Percentages Chi-Square Test and Graphs Excel Spread Sheets.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
9
Research Design
2.6
Significance of the Study
The study was carried out to find the attitude of investors towards the investment options available to NRIs in India. The study also tries to determine the risk-return preferences of the investors. The aim of the research was to educate the NRIs to give detailed knowledge about the various investments, the features of these investments and the risk attached to them. 2.7
Limitations of the Study The area of the study is limited to the NRI’s based in UAE only. Hence the results may not be true for other geographical locations.
Validity and Reliability of the data depends on the truthfulness of the responses from the public. Chances of bias were more since the sample size of the study was just on 200 respondents.
Time at the disposal of the researcher is limited.
The size of the sample compared to the population is very small and hence it may not represent the whole population.
A structured questionnaire was the basis for collecting the data, so it has the usual deficiencies attached to this technique of data collection.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
10
CHAPTER- 3 LITERATURE REVIEW 3.1
What is INVESTMENT??
Investment is the employment of funds with the aim of achieving additional income or growth in value. The essential quality of an investment is that it involves ‘waiting’ for a reward. It involves the commitment of resources, which have been saved or put away from current consumption in the hope that some benefits will accrue in future. The term investment does not appear to be as simple as it has been defined. Investment has been further categorized by financial experts and economists. It has also often been confused with the term Speculation. 3.1.1
Financial & Economic Meaning of Investment
Investment is the allocation of monetary resources to assets that are expected to yield some gain or positive return over a given period of time. These assets range from safe investments to risky investments. Investments in this form are also called “Financial Investments”. From the point of view of people who invest their funds, they are the suppliers of ‘Capital’ and in their view, investment is a commitment of a person’s funds to derive future income in the form of interest, dividends, rent, premiums, pension benefits or the appreciation of the value of their principal capital. To the financial investor, it is not important whether money is invested for a productive use or for the purchase of second hand instruments such as existing shares and stocks listed on the stock exchanges.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
11
Most investments are considered transfers of financial assets from one person to another. The nature of investment in the financial sense differs from its use in the economic sense. To the economist, ‘Investment’ means the net additions to the economy’s capital stock which consists of goods & service that are used in the production of other goods & services. In this context, the term investment, therefore, implies the formation of new and productive capital in the form of new construction, new producer’s durable equipment such as plant and equipment. Inventories & human capital are included in the economist’s definition of investment. The financial & economic meanings of investment are related to each other because investment is a part of savings of individuals which flow into the capital market either directly or through institutions, divided in ‘new’ and secondhand capital financing. Investors as ‘suppliers’ and investor as ‘user’ of long term funds find a meeting place in the market. 3.2
Why investments are important?
Investments are both important and useful in the context of present-day conditions. Some factors that have made investment decisions increasingly important are: 3.2.1
Longer life expectancy or planning for retirement
Investment decisions have become significant as people retire between the age of 55 and 60. Also, the trend shows longer life expectancy. The earnings should, therefore be calculated in such a manner that a portion should be put away as savings. Savings by themselves do not increase wealth; these must
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
12
be invested in such a way that the principal and income will be adequate for a greater number of retirement years. The importance of investments decisions is further enhanced by the fact that there is increasing number of women working in organizations. These women will be responsible for planning their own investments during their working life so that after retirement they are able to have a stable income. 3.2.2
Increasing Rates of Taxation
Taxation is one of crucial factors in any country, which introduces an element of compulsion in a person’s savings. There are various forms of savings outlets in our country in the form of investments which help in bringing down the tax level by offering deductions in personal income. 3.2.3
Interest Rates
Another aspect which is necessary for a sound investment plan is the level of interest rates. Interest rates vary between one investment and another. These may vary between risky and safe investments; they may also differ due to different benefit schemes offered by the investments. These aspects must be considered before actually allocating any amount. A high rate of interest may not be the only factor favoring the outlet for investment. The investor has to include in his portfolio several kinds of investments. Stability of interest is as important as receiving a high rate of interest. 3.2.4
Inflation
Inflation has become a continuous problem since the last decade. In these years of rising prices, several problems are associated coupled with a falling standard of living. Before funds are invested erosion of the resources will have to carefully considered in order to make the right choice of Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
13
investments. The investor will try to search an outlet, which will give him a high rate of return in the form of interest to cover an decrease due to inflation. He will also have to judge whether the interest or return will be continuous or there’s a likelihood of irregularity. Coupled with high rates of interest he will have to find an outlet which will ensure safety of principal. Besides high rate of interest & safety of principal, an investor also has to always bear in mind the taxation angel.
The interest earned through
investment should not unduly increase his taxation burden. 3.2.5
Income
Another reason why investment decisions have assumed importance is the general increase in the employment opportunities.
The employment
opportunities gave rise to both male and female working force. More incomes and more avenues of investment have led to the ability and willingness of working people to save and invest their funds. 3.2.6
Investment Channels
The investor in his choice of investment will have to try to achieve a proper mix between high rate of return and stability of return to reap the benefits of both. Some of the instruments available are Corporate Stock, Provident Fund, Life Insurance, Fixed Deposits in the Corporate Sector, Unit Trust Schemes and so on. 3.3
Elements of Investment
The study of investments is concerned with the purchase and sale of financial assets and the attempt of the investor to make logical decisions about the various alternatives in order to earn returns of them. The returns are further dependent on the varying degrees of risk.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
14
A functional definition as defined by Amling is, “Investment maybe defined as the purchase by an individual or institutional investor of a financial or real asset that produces a return proportional to the risk assumed over some future investment period. These definitions of investments bring froth three elements of investment, categorized as: a.
Return
b.
Risk
c.
Relationship of risk & return
d.
Time factor
3.3.1
Return
Investors may buy and sell financial assets in order to earn returns on them. The returns, better known as reward from investments, include both current income and capital gains or losses which arise by the increase or decrease of the security prices. The capital gains or the income earned are then treated as a percentage of the beginning investment. Returns, therefore, may be expressed as the total annual income and capital gain as a percentage if investment. Satisfactory returns are different for different people. Two rational investors may be satisfied by different levels of anticipated return and estimated risk. Rational investors like returns but are risk averse. They try to maximize their utility by buying, holding, or adjusting their portfolio to achieve “maximum utility”.
3.3.2
Risk
Risk and uncertainty are an integral part of an investment decision. Risk is composed of the demands that bring in variations in return of income. The main forces contributing to risk are price and interest. Risk is also influenced by external and internal considerations. External risks are uncontrollable and Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Literature Review
15
broadly affect investments. These external risks are called systematic risk. Risk due to internal environment of a firm or those affecting a particular industry are referred to as unsystematic risk. 3.3.3
Relationship of Risk & Return
Risk and return are inseparable. To ignore risk and only expect return is an outdated approach to investments. The investment process must be considered in terms of both aspects – risk and return. Return is a precise statistical term; it is not a simple expectation of investor’s return but is measurable also. Risk is not a precise statistical term but we use statistical terms to quantify it. The investor should keep the risk associated with the return proportional as risk is directly correlated with return. It is generally believed that higher the risk, the greater the reward but seeking excessive risk does not ensure excessive return. At a given level of return, each security has a different degree of risk. The entire process of estimating return and risk for individual securities is called security analysis. 3.3.4
Time
Time is an important factor in investments. Time offers several different courses of action. It may involve from trading to buying and selling at major turning points in the market. It may also consider the time period of investment such as long term, intermediate or short term. Time period depends on the attitude of the investor. As investments are examined over the time period, expected risk and return are measured. The investor usually selects a time period and return that meet expectations of return and risk.
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3.4
Types of Investments
3.4.1
Bank Deposits
Traditionally banks in India have four types of deposit accounts, namely Current Accounts, Saving Banking Accounts, Recurring Deposits, Fixed Deposits. However, in recent years, due to ever increasing competition, some banks have introduced new products, which combine the features of above two or more deposits. These are known by different names in different banks, e.g. 2-in-1 deposits, Smart Deposits, Power Saving Deposits, and Automatic Sweep Deposits etc. 3.4.1a
Current Deposits / Accounts
These accounts are used mainly by businessmen and are not generally used for the purpose of investment. These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. Most of the current account are firm / company accounts. Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favor by third parties. No interest is paid by banks on these accounts. On the other hand, banks charge service charges, on such accounts. 3.4.1b
Saving Deposits / Accounts
These deposits / accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. The interest on
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these accounts at present is regulated by Reserve Bank of India. Banks in India at present offer 3.50% p.a. interest rate on such deposits. 3.4.1c
Recurring Deposits / Accounts
These kind of deposits are most suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month. Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits. These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans. Under these types of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs, 100/p.m.). Any default in payment within the month attracts a small penalty. However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon. Such accounts are normally allowed for maturities ranging from 6 months to 120 months. A Pass book issued where the person can get the entries for all the deposits made by him / her and the interest earned.
Premature withdrawal
of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals).
These accounts can be opened in single
or joint names. Nomination facility is also available. 3.4.1d
Fixed Deposit Accounts / Term Deposits
Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 15days to 5 years. The interest can be compounded quarterly, halfyearly or annually and varies from bank to bank. Minimum deposit amount is Rs 1000/- and there is no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is permissible but it involves loss of interest. 3.4.2
Fixed Deposit Schemes In Companies
Another type of investment is the fixed deposit investment schemes offered by various companies. These schemes are generally offered by public limited companies in the private sector. Deposits may be cumulative or noncumulative. These fixed deposit schemes are offered through newspaper advertisements and are subject to the provision of the Companies Rules of 1975. There are offered to the public as well as existing shareholders and employees. The advantages of fixed deposit scheme of companies are that they are deposits for short-term and offer a higher interest than the commercial banks. Retired people find fixed deposits a good investment. 3.4.3
Post-Office Schemes
Post- office schemes are generally like the commercial bank schemes. They have a saving account, a recurring account, a ten-year Cumulative Time Deposit (CTD) account which are also recurring in nature. The savings account operates in the same way as commercial banks through cheques and there is no restriction on withdrawals. Post- Offices also sell Indira Vikas Patra and are also popularizing Kisan Vikas Patra. This investment doubles in seven years. These instruments cannot be transferred easily from one
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person to another. But the investor can nominate any person who can avail of this scheme in the event of the death of the investor. Post- Office Scheme has been prepared carefully with the view that the small investor will take advantage of easy accessibility due to the fact that Post-Office exists in every locality. Moreover it was also to encourage the savings habits of the uneducated class and small savers. These resources of the small savers help in mobilization of savings of the economy. 3.4.4
Stocks / Shares
Stocks are essentially investments in a specific publicly traded corporation, such as Coca-Cola, or Google. Publicly traded companies issue shares of their stock to the general public. Each share represents a fractional percentage of ownership in a company. Buying and selling individual stocks is accomplished through stock market exchanges throughout the world. Trading stocks successfully requires a working knowledge of how the stock market works and what affects stock market prices. The stock market is not gambling; however there are people that use the stock market as the gambling platform. Stock prices rise and fall on company news, on earnings, and a number of other reasons. Potential stock investors should learn how to research individual stock issues and make decisions based on the fundamental operation of the company. That being the case, there are investors who trade individual stocks on news and hype. This is generally considered a high risk-investing model, but can be very rewarding financially. Stocks and Shares are the two sides of the same coin. Basically, they both mean the same thing. The difference between the two lies in the technical definition of the two. When an investor holds the ownership certificates of a Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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particular company then it is known as Shares. Stock is a general term for Shares. Stock is the ownership of certificate (either in physical or dematerialized form) of any company. Hence we can say that Stock is the share of any company. Thus, Stock ownership means holding of ownership certificates of one or more than one company. Shares are certificates which represent ownership rights of the holder in a specific company. Basically, Stocks and Shares signify the same thing where one is used in general term and the other in specific term. Stocks generally are of 3 types:3.4.4a
Common Stock
It gives an ownership right to the holders of the stock and hence the share holders are entitled to the earnings of the company according to their stake. Holders also get dividends on those stocks as and when given by the company. 3.4.4b These
Preferred Stock stocks
also
give
ownership
right
to
its
holders.
Its holders enjoy the privilege of receiving dividends from the company in preference to any other common shareholders. 3.4.4c
Convertible Preferential Stock
There is also another type of Stock called Convertible Preferential Stocks where the holders of these stocks have the option of converting them to common stocks of the issuing company. Holder of a Stock is that person who buys the ownership certificate(s) of any company. This person becomes the part owner of the company in accordance to the number of stock he owns. The holder is entitled to claim anything attached to the stock right Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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from the company's earnings to rights of voting. Stock is nothing but a Stock Certificate which is the proof of ownership of a company. 3.4.4d
Bonds
The bond market in India is not well developed but the bonds issued by public sector financial institutions are becoming quite popular with the public. Since 1985, public sector institutions have been encouraged to borrow directly from the public. This had led to the issuer of bonds by mutual funds and financial institutions. In the recent years, the bonds issued by IDBI have received overwhelming support of the public and have been oversubscribed. Investing in bonds is essentially were loans are made to corporations and governments by investors. The corporation or government then makes fixed interest payments to the bond investor or a set period of time, called the term. At the end of the term, the investor gets back the original investment amount, called the principle. Investing in bonds is generally considered a more moderate form of investing. Bonds investing are not a investing vehicle they generally will produce the kinds of results that investing in individual stocks can. Still for many people investing in bonds offers a security of a nearly guaranteed return. Bonds are evaluated by third-party resources, and investors can make informed decisions based on the credibility of the government or corporation issuing the bond. While most government bonds offer a measure of security other investment vehicles cannot, investing in corporate bonds carries with it a degree of risk that should be considered. Evaluating which bonds might be the best investment, would depend largely on the history of the company issuing the bonds. If a corporation has a high credit rating, chances are your money is not at high
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risk. However, if the corporation has experienced credit difficulty in the past, the risk of losing your principle rises accordingly.
3.4.4e
Debentures
In India, Debentures derived importance only since 1970. There are various kinds of debentures in the market. There are:
Registered
Bearer
Redeemable
Perpetual
Convertible and
Right
In India, the convertible debentures have become significant. These debentures cab be converted into ordinary shares at the option of the shareholders after a certain number of years. Right debentures are also being issued but generally financial institutions and trust purchases these debentures. 3.4.4f
Mutual Funds
Mutual funds are investments that pool money from many investors and invest it in a specific set of stocks and bonds. There are different types of mutual funds and literally an investor can find a mutual fund that specializes in any industry specific stocks and bonds they choose. One of the more popular types of mutual funds today is an index fund. Index funds attempt to mimic the performance of a specific market index such as, the S&P 500, or the Russell 2000. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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Mutual funds serve important function for those investors who do not want to follow the day to day research and evaluation comes from investing in individual stocks. Mutual funds hire professional teams and leaders to evaluate and buy and sell issues based on market conditions. The mutual fund investor in turn, owns shares in a mutual fund and profits from the expertise of the professionals. Mutual funds can be considered low risk investments to very high risk investments. It depends on which mutual fund you choose in which industry sector you want to commit your resources to. You can invest in green mutual funds or tech funds anything in between. 3.4.5
Life Insurance
Life Insurance is a contract between a person and an insurance company for a number of years covering either the life time period or a fixed number of years. In India, life is protected by a monolithic institution called the Life Insurance Corporation of India. Life insurance is called an investment because of number of reasons: 1.
It provides protection against risk of early death.
2.
It can be used as collateral for taking loans from banks.
3.
Life of key men in an association can be protected.
4.
It provides tax advantages.
5.
It is a measure of protection at the time of death because it gives provision for estate duty
6.
It is a sum of money received at the end of a particular number of years, i.e., “the termination period of the contract.” Life insurance is therefore, called an investment with an element of protection and an element of investment.
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Real Estate
Real estate investment involves the commitment of funds to property with an aim to generate income through rental or lease and to achieve capital appreciation. Real estate refers to immovable property, such as land, and everything else that is permanently attached to it, such as buildings. When a person acquires real estate, s/he also acquires a set of rights, including possession, control and transfer rights. Understanding real estate investment is crucial because it usually involves a substantial investment and a long-term one. Moreover, the real estate market can be unpredictable. This is particularly important when one goes beyond buying a home to actually 'investing' in real estate. There are a number of ways in which an investor can participate in the real estate market. 3.4.6a
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a corporation that invests in real estate. REITs trade on major exchanges. A REIT uses investors' money to acquire and operate properties. The benefits of REITs are:
REITs provide fairly regular income.
Investors gain exposure to non-residential investments (like malls and office buildings).
REITs are highly liquid.
REITs are required by law to distribute 90% of their taxable income in the form of dividends to shareholders. Before making a choice regarding the kind of real estate
participation, an investor must evaluate his/her investment capacity and risk appetite.
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Gold Investment
Gold investing involves the buying and selling of gold mainly for the purpose of hedging against any economic, political, social or currency related crisis. Such crises may include a stock market crash, high inflation, war or any social unrest. Moreover, since gold is the most popular precious metal, gold investments are made for financial gains when the market is bullish. How is Gold Investing Done? The two main methods of gold investing are: Direct investment: One can directly invest in gold by owning bullion or coins. Indirect investment: This method of gold investing includes gold certificates, spread betting, accounts and derivatives. Gold exchange traded funds (ETFs) and shares of companies that are engaged in the mining of gold are some of the other gold investment options. 3.5
Factors Favorable for Invest in India
The investment market should have a favorable environment to be able to function effectively. In India where all business activities are marked by social, economic and political considerations. It is important that the political and economic institutions are favorable. Generally, there are four basic considerations which foster growth and bring opportunities for investment. There are: 3.5.1
Legal safeguards
A stable government which frames adequate legal safeguards encourages accumulation of savings and investments. Investors will be willing to invest their funds if they have the assurance of protection of their contractual and Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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property rights. In India the investors have the dual advantage of free enterprise and government control. Freedom, efficiency and growth are ensured from the competitive forces of private enterprises. On the other hand being a mixed economy, government control exerts discipline and curtails some element of freedom. A combination of the public sector controlled by the government and private sector left free to operate, hopes to achieve the benefits of both socialistic and capitalist forms of government without their disadvantages. In India, the political culture is conducive to investment as government control leads stability to the capital market. 3.5.2
Well Organized Monitory System
A well-organized monetary system with definite planning and proper policies is a necessary prerequisite to an investment market. Most of the investments such as bank deposits, life insurance and shares are payable in a fixed amount of the currency of the country. A proper monetary policy should neither promote acute inflationary pressures nor prepare for a deflation model. Neither condition is satisfactory. Price inflation destroys power of investments. Inflation occurs generally in unstable conditions like war or floods bus into the last decade, it also discernible in peace conditions epically in developing countries because of huge government deficit financed by bank credit. A reasonable stable price level which is produced by wise monetary and fiscal management contributes towards proper control, good government, economic well-being and a well-disciplined growth oriented investment market and protection to the investor.
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Existence of Financial Institutions to encourage Savings
The presence of financial institutions, which encourage savings and direct those to productive uses, helps the investment market to grow. The financial institutions generally in existence in most countries are commercial banks, life insurance companies and investment companies. 3.5.4
Features of an Investment Program
3.6.1
Safety of Principal
The investor to be certain of safety of principal should carefully review the economic and industry trends before choosing the types of investment. Adequate diversification, mixing investment commitments by industry, geographically, by management, by financial type and by maturities, proper combination of these factors would reduce losses. Diversification helps to a great extent in proper investment programming. But it must be reasonably accomplished and should not be carried out to extremes. 3.6.2
Liquidity
Every investor requires a minimum liquidity in his investment to meet emergencies. Liquidity will be ensured if the investor buys a Proportion of readily saleable securities out of his total portfolio. He may therefore keep a small proportion of cash, fixed deposit and units, which can be immediately made liquid. Investment like stocks, property or real estate cannot ensure immediate liquidity. 3.6.3
Income stability
Regularity of income at a consistent rate is necessary in any investment pattern. Not only stability, it is also important to see that the income is adequate after taxes. It is possible to find out some good securities, which pay practically all their earnings in dividends. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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Appreciation and purchasing power stability:
Investor should balance their portfolio to fight against any purchasing power instability. Investors should judge price level inflation; explore the possibility of gain and loss in the investment available to them, limitations of personal; and family considerations. The investors should also try and forecast which securities will possibly appreciate. Purchase of property at the right time will lead to appreciation in time. Growth stock will also appreciate over time. These, however, should be done thoughtfully and not in a manner of speculation or gamble. 3.6.5
Legality and freedom from care:
Law should approve all investment. Law relating to minors, estates, trusts, shares and insurance should be studied. Illegal securities will bring out many problems for the investor. One way of being free from care is to invest in securities like Unit Trust of India or Life Insurance Corporation or Savings Certificates. The management of securities is then left to the care of the trust that diversifies the investment according to safety, Stability and liquidity with the consideration of their investment policy. The identity of legal securities and investment in such securities will also help the investor in avoiding many problems. 3.6.6
Tangibility
Intangible securities have many times lost their value, due to price level inflation, confiscatory laws or social collapse. Some investors prefer to keep a part of their wealth invested in tangible properties like building, machinery and land. It may, however, be considered that tangible property does not yield an income apart from the direct satisfaction of possession of property.
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Classification of Investors
Investors can be classified into different groups depending on their attitude towards risk, expectation etc., Each investor also has an indifference point at which his own expectation of return matches with the risk that he can take. The investor should also be able to assess his own behavior pattern before he aims at a particular goal, which he wishes to attain. In some cases, most of the investors are willing to sacrifice some expected income or return if the income is certain. The higher the income group of an investor the greater will be his desire for purchasing assets which will give him a favorable tax treatment. The Investor is classified into: a)
Risk Group
Investors can be classified into different groups depending on their attitude towards risk. Each investor also has an indifference point at which his own expectations of returns match with the risk that he can take. A diversified portfolio carefully chosen from the numerous securities available in the market will help the investor in achieving his objectives. The investor should also be able to assess his own behavior pattern before he aims at a particular goal which he wishes to attain. Broadly, he should be able to identify whether he is a risk averter, risk neutral or risk taker. If he identifies himself as risk averter, his normal behavior pattern will show his preference for investments of low market rate risk and interest rate risk. He would prefer Government securities, Life insurance Policies, Unit Trust Certificates that he is sure would give him a continuous return. Another class of investors is called the risk neutrals. Such investors are willing to pay for making an investment provided they get a return of an Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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equal value. Their investment trends show that they try to take some risky stocks in their total investment program but have a larger number of securities which give them a firm return. The risk takers form the third category of investors. They do not mind paying more than the expected value of an asset for an uncertain future. They believe in high return for a greater risk. Such investors emerge as potential gamblers. While investors can be classified in categories of high risk, no risk or medium risk takers, it can be said that the major group of investors are those who can absorb medium risk. Most investors are willing to sacrifice some expected income or return if the income is certain. Table 2.1 Types of Investors (based on risk)
b)
Income Group
The income group of an investor evokes responses to the available investment outlets. The higher the income group of an investor, the greater will be his desire for purchasing assets, which will give him a favorable tax treatment. The source of income usually has a bearing on deduction of tax. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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Certain sources of income are taxed like ordinary income. Other sources of income may be exempted from income tax. These investment outlets should be identified. The investments must be geared in a manner that combines the features of low risk and low taxation to the maximum benefit. Low-income group investor will not look towards tax benefit. His maximum utility will be at a point of greater reward. Table 2.2 Types of Investors (based on Income)
3.8
Income Group
Return
Risk
Tax Benefits
Low
High
Medium
Nil
Medium
High
Medium
Some
High
High
Medium
Medium
Non-Resident Indian (NRI)
Non-Resident Indian or NRI refers to a person of Indian origin staying in a different global location for employment/carrying on business or vocation. They are spread across the world with an estimated population of 50 to 150 million. Most of the NRI populate have migrated to alien countries for better job prospect and future but with the advent of global MNCs (Multinational companies) and implementation of revised foreign policies in India, the NRIs are driven to become a part of this fastest emerging economy. NRIs can make investments in all the investments options, which are available to Resident Indians. However, Persons of Indian Origin can only make investments in non-agricultural businesses in the country. To encourage this initiation of NRIs to resettle and return back to India, they are granted the following facilities: Maintenance of bank accounts in India.
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in
securities/shares
of,
and
deposits
with
Indian
firms/companies. Investments in immovable properties in India. Transferring of money to India is no longer a tedious procedure for the NRIs as the availability of efficient Money Exchange Service Providers helps them to send money directly into any bank account within no time. Most of these service providers offer PayPal transfers and 24x7 Customer Support for the expediency of NRIs. To appreciate the interest of NRIs in India’s immovable properties, the government of India has come up with beneficial investment policies for the NRIs. The Reserve Bank of India allows them to acquire, hold, transfer or dispose of land by way of sale or inheritance. Such properties are meant for the purchaser's bonafide residential use and they are purchased through normal banking channels/home loans or NRE and FCNR (Foreign Currency Non- Resident Account) 3.9
Financial Advisors
Financial advisors play an important role in helping you to make the right investment decisions. Depending on the type of financial advisors that you choose, they can make your life easy or difficult. It is critical for you to learn about different types of financial advisors, so that you may understand which of them suit your requirements. Qualifications Title of financial advisors depends on their qualifications. Make it a point to confirm the qualifications of a person who claims to be a certified financial advisor. Remember to inquire about credentials of a person who passes himself or Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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herself off as a “financial planner” or financial consultant” The different types of financial advisors strutting around with fancy titles may only end up confusing and misleading you. Only a certified financial advisor can assist you to arrive at intelligent investment decisions.
3.10
Investment Opportunities for NRIs
To attract foreign investment in India, Government is offering several facilities to Non Resident Indians (NRIs), Persons of Indian Origin (PIO) and Overseas Corporate Bodies (OCBs). While NRI refers to an Indian citizen who is residing outside India, PIO refers to an individual who at any time held an Indian passport or whose father or grandfather was a citizen of India. According to the laws, NRIs/PIOs/OCBs/ are permitted to open bank accounts in India out of funds remitted from abroad. The foreign exchange brought in from abroad or out of funds is legitimately due to them in India, with authorized dealer. The Reserve Bank of India (RBI) has granted general permission to NRIs/PIOs, for undertaking direct investments in Indian companies, under the Automatic Route purchase of shares under
Portfolio Investment Scheme
Investment in Companies
Proprietorship / Partnership Concerns on non-repatriation basis.
NRIs/PIOs do not have to seek specific permission for approved activities under these schemes.
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3.11
Investment Options in India for NRIs
3.11.1
Ordinary Non-Resident Accounts in Rupees [NRO]
As the name suggests, it's an Ordinary Non-Resident Accounts in Rupees, also known as NRO account. The existing accounts of any Indian National can be designated as Ordinary Non-Resident Accounts, upon your NRI status, or these accounts can also be opened with initial deposits paid into any bank or post office (saving a/c) authorized to open Non-Resident accounts. NRO account can be of any type: saving, current or Fixed Deposit. Interest payable on NRO accounts is the same as on resident accounts. They vary from bank to bank as they have been freed from RBI regulation. You can also have a joint account with residents in India. NRO accounts may be re-designated as resident accounts when the account holder becomes a resident in India. Disadvantages of NRO
Interest earned on balances in NRO Accounts is not exempted from Indian Income tax. Instead income tax is deducted at source (TDS) i.e. at the time of payment of interest by the bank.
Balance held in NRO account can neither be repatriated. No remittance in foreign currency is allowed without prior approval of Reserve Bank as well. So overall, the money stays 'as is' in India.
3.11.2
NRE Accounts (Non-Resident (External) Account)
The rates of interest on term deposit kept under NR(E) are generally higher than the rates of interest on NRO deposits. The following highlights some of the key features of NRE accounts.
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No joint account with an Indian residence.
Non-Resident account holders can grant a power of attorney or such other authority to any residents in India for operating their NR(E) Accounts in India. Such authority is however, restricted to withdrawals for local payments. The attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.
The rates of interest payable on NR(E) accounts are subject to change from time to time as per directions issued from Reserve Bank of India.
An eligible Non-Resident Indian can open an account with any RBI approved authorized bank
Disadvantages of NR(E) Accounts NR(E) Accounts are opened in Indian rupees, and all foreign exchange remittances received for credit of that account are first converted to Indian rupees at the buying rates by the banks. The bank will permit any withdrawal in foreign currency, by converting Indian rupees in the account to foreign currency at the selling rate. All balances in the account are held in Indian rupees and are thus exposed to exchange fluctuation risk Note:
The NRO account can't be converted into NRE. Also funds can't be transferred from NRO to NRE account without a special permission from RBI and proof of all existing funds required, which is a complex procedure than opening a new NRE account.
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The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without any reference to Reserve Bank of India.
Once you go back to India for good and become an Indian resident, NRE account can be converted into your normal Resident Rupee Account.
3.11.3
FCNR Accounts
Foreign Currency Non Resident (B) Account [FCNR (B)] are governed by the provisions of [Foreign Exchange Management (Deposit) Regulations, 2000.].FCNR is maintained in foreign Currency viz. US Dollar (USD), Pounds Sterling (GBP), Euro Currency (EUR) and Japanese Yen (JPY), but only as fixed deposits. The principal and interest earned thereon are repatriable. The deposit under FCNR (Banks) scheme is held in foreign currency. The interest and the repayment of the deposit is also made in the same foreign currency in which the account is maintained. The depositor may at his own will, obtain repayment in Indian rupees, converted at the buying rate on the date of repayment. Deposits under this scheme are held for the following period: 6 months and above, but less than 1 yr-1 yr and above but less than 2 yrs-2 yrs and above but less than 3 yrs-3 yrs only. Premature withdrawal is allowed, but there will be a penalty. Non-Resident Account holders can grant power of attorney (for a specimen click here) or such other authority to residents in India for operating their FCNR(B) accounts in India. Interest rates are subject to the RBI guidelines . Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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These accounts are opened for periods ranging from 12 months to 3 years. This is the only option available for NRIs for keeping their deposits in foreign currency. This account has a clear advantage that the customer’s fund is protected from fluctuations in exchange rates. Moreover, the investor can earn an interest on this deposit in the designated foreign currency. Interest earned on FCNR deposit is exempt from Income Tax as far as the depositor is not Resident of India or not Ordinarily Resident in India as per the Income Tax Act. Deposit exempted from wealth tax. Note
:
Opening of FCNR(B) accounts in the names of NRIs of Bangladesh/ Pakistan nationality/ ownership requires approval of Reserve Bank of india. 3.11.4
Term Deposit Accounts
Term deposits can be opened by remittances from abroad or by transfer of funds from existing NRE/FCNR/NRO/NRSR accounts of the same person with other banks in India or from other branches of the bank or by tendering foreign currency notes/ travelers cheques brought by NRI's during their visit to India. 3.11.5
Portfolio Investment Schedule (PIS)
This is similar to the NRE/NRO savings a/c. The NRI can trade in the secondary stock market with Repatriation (from NRE PIS a/c) and on nonrepartiation basis (from NRO PIS a/c). Demat a/c’s can be opened with signatures of power of attorney (POA)
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Unit Deposit
It is a fixed deposit scheme wherein you can withdraw your deposit to the extent of your need and leave the remaining amount undisturbed to earn you interest at the contracted rate. Apart from these, NRIs are permitted to make direct investments in proprietary/partnership concerns in India as also in shares/debentures of Indian companies. They are also permitted to make portfolio investments i.e. purchase of shares/debentures of Indian companies through stock exchanges in India. These facilities are granted both on repatriation and non repatriation basis. Investment by NRIs in India can be broadly classified as investment on repatriation basis and on non-repatriation basis. Repatriation basis means the income/dividend/ interest earned from the investment and the sale/maturity proceeds of investment can be repatriated outside India at any time or can be credited to NRE account of the investor subject to deduction/payment of Income Tax. Non repatriation basis denotes that the amount invested and its capital appreciation will not be allowed to be repatriated. However, the interest/dividend/income earned may be permitted to be repatriated/ credited to NRE account of the investor, subject to terms prescribed by RBI. Investment on repatriation as well as non-repatriation basis is permitted in the following categories.
Government dated securities (other than bearer securities) /treasury bills.
Units of domestic mutual funds.
Bonds issued by a public sector undertaking (PSU) in India. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
Shares and convertible debentures of Indian companies under FDI scheme (including automatic route & FIPB).
Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme.
3.11.7
Equities
With sentiments running negative in favor of stock markets and risk aversion being the flavor of the scene an average investor is wary of investing in stocks markets. But despite all the negativity surrounding India at this moment the fact still remains that apart from China India is the only country in the world that is growing over 7% and has the potential of growing by 8 – 9 % annually. Even by the estimates of the World bank, India will grow at 7%. This annual growth coupled with the rupee appreciation expected in few months coupled with the interest rates reduction Indian stock markets remains a destination where putting your money can give you extremely good returns in a medium to long term. 3.11.8
Bonds
With the reserve bank of India showing signs of start of the interest rates cycle the bond prices are expected to rise in the coning few months and it would be safe to assume that they would be offering good returns with no or very less risk. With the rupee depreciation offering currency conversion benefits these returns also can easily surpass the returns that investors can earn in the western world
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24% and 40% Schemes
The 24% Scheme allows Indian companies, except those engaged in agricultural activities, to issue up to 24% of their shares and debentures to NRIs with repatriation benefits. Similarly, the 40% scheme allows for purchase of equity, preference shares and convertible debentures not exceeding 51% of the face value of each issue. Repatriation of up to 40% of the new issue is allowed. Under this scheme, NRIs can invest in new projects or in expansion and diversification projects of existing companies. 3.11.10
How can an NRI invest / trade in Indian Stock Markets?
Step 1:
Get PAN Number, Open three types of accounts and get
Reserve Bank of India's one time permission. 1.
Obtain PAN number from Income Tax Department of India if you don't have one. Since Jan 1, 2007, it is compulsory to have PAN if you want to place any trade with a broker in India. Permanent Account Number (PAN) card is issued to anybody who pays or will have to pay taxes in due time in India. As per the new rules and guidelines, even NRI’s are required to have a PAN card
2.
Open two bank accounts with RBI (Reserve Bank of India) approved Designated Bank Branch- NRE Account and NRO Account. A designated branch is a bank branch which is selected/approved by Reserve Bank of India to open NRE accounts that are intended to be used for buying and selling stocks on stock exchanges. Such branches also have the expertise and
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infrastructure to handle NRI's trading under RBI's Portfolio Investment Scheme. 3.
Open a Demat Account, this depository account maintains your stock balances so you get stock splits, dividends, Meeting notices and Annual reports etc. The depository concept is similar to the Banking system with the exception that banks handle funds whereas a depository handles securities of the investors. A depository can therefore be conceived of as a "Bank" for securities. An investor wishing to utilize the services offered by a depository has to open an account with the depository through the Depository Participant. This is very similar to opening an account with any of the branches of a bank in order to utilize the services of that bank.
4.
Open an account with a stock broker, there are two major stock exchanges in India- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Each of them have several hundred members. So open an account with a stockbroker who is a member of either of the stock exchange. As NSE has nationwide coverage and is professionally run, an account with a NSE member is more desirable over an account with a BSE member.
5.
Once these three accounts are in place, see if you have a local relative/representative in India, who can spare some time for you if and when needed, be very careful before you proceed without having a local rep for you. It is strongly recommend that in order to make your investing in India smoother, please find a relative or a person who you can trust and who you think has right Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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motivation to take care of your stuff. Give a Power of Attorney to such a person. 6.
Get Reserve Bank of India's approval The application is to be submitted to Reserve Bank through a designated branch of a bank in India in one of the prescribed forms, i.e. NRC/NRI/RPC/RPI. Reserve Bank issues general permission for a period of 5 years which can be renewed further by authorized dealer concerned for a period of 5 years at a time. The approval you get is general approval and you don't need to get any other approval from RBI over the next 5 or so years. The purpose of such approvals is not to reject your application but to keep records/traces of your investments in the country so most of NRIs would get this approval within around 2 weeks.
Step 2:
Now you are ready to invest/trade in Indian stocks.
Routine things that an investor (NRI) need to do are: 1.
Stock Selection as always, you will need to do research before you take a plunge. So do your research and select the stocks you want to invest in.
2.
Clearance from your Bank Contact your bank with the list of stock you are intending to invest in and your bank will clear you for trading/investing in those stocks. (As per Indian rules, NRIs cannot collectively acquire more than 24%, 40% or X % of the paid up capital of an Indian company. So RBI maintains the current levels of NRI holding in various companies through the designated branches. After you give your list to your banker, she would check her lists and make sure there is room in individual Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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companies for NRIs to invest. If the limit is exceeded, you might not be able to invest in those stocks. So make sure you get prior clearance about your investments from your banker. 3.
Place Trades through Stock Broker Place your order(s) with your stock broker. With many stock brokers, you an place now online orders. Thanks to Internet, this step is much easier now.
4.
Forward Copy of Trade confirmation to your Bank After you order is confirmed, forward a copy of the Trace Confirmation to your bank.
5.
Pay to your Broker for purchases and tell him about our Demat account Write a check out of your NRE/NRO account to the stock broker. On the settlement date, your stock broker will send the stocks to your demat account so you might want to verify with your depository participant if the stocks are credited in your account. If your demat account is also with the broker you are trading with, your life will be a bit simpler- one less institution to deal with. Also, thanks to the Internet, currently many banks and demat institutions offer online access to your accounts which comes handy in managing your investments in India.
6.
Closing/Settling your Investment Fortunately, repeat step 3 and 4 above. Place a SELL order with your broker. When your order is confirmed, transfer shares to your broker's clearing account from your demat account. After settlement, your broker will give you a check. Take that check and a copy of broker's bill showing the SELL transaction to your bank account for deposit. The bank will Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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withhold some taxes on the gains you had and deposit the rest amount in your account. (Certain bank branches may require you to get a certificate about how much to withhold from your accountant or lawyer. 7.
File your Tax Returns every year Most of the time, you might be able to get refund from the withholdings done by your banker. Sometimes you might owe additional taxes to Indian government. Check with your tax consultant in India. (There is only FEDERAL type of tax in India. There are no STATE or local taxes levied on individuals.)
3.11.11
Immovable Property
NRIs and PIO can acquire immovable property in India other than agricultural/plantation property or a farmhouse. Whether it is a residential or commercial property investment, Indian real estate prices have been on the rise and investors have even had 100% returns in certain metro cities in the last few years. Even the great 2008 recession was not able to stop this rally for a long time. With rupee depreciating NRI’s have more purchasing power in their hands. Investors can earn three folds from investing in properties in India. After gold property is considered to be a hedge against inflation and property prices in India have more or less given 10% returns on an annual basis. These returns are much more than an average investor in the western world can hope of if they invest in their markets. Investors can also earn from rentals from the property. With squeeze in supply over demand and the affordability factor rentals in the major metro cities is a decent income. You could easily get around 4% returns through renting your property and with luck favouring or with prime location the Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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returns can increase to 5%. With the rupee depreciating to the extend it is in the coming few months or years even if the reversal is half of what the rupee has depreciated you are still in line of getting at 6 – 7% returns because of the currency conversion. It would not be an over statement to say that investment in property can easily give you 30 – 40 returns in 2 – 3 years.
NRIs can invest through their representatives in India by giving a power of attorney to act on their behalf. A copy of the power of attorney should be notarised with the Indian consulate in the respective country which will provide authenticity on their behalf for an investment in property in India. The property can be registered in the name of the NRI, and the power of attorney holder can sign on their behalf by producing a copy of the power of attorney to the appropriate authorities. If a NRI decides to acquire a house through a power of attorney , he can still proceed abroad. This is because, for the purposes of income tax and wealth tax, the power of attorney holder accompanied by the actual possession of the property through the agreement to sell is deemed to be the owner of the property for the purposes of Section 27 of the Income Tax Act. A general power of attorney in favor of the NRI's relatives will enable them to sell the property and arrange to repatriate the sale proceeds through an authorised foreign exchange dealer after payment of the taxes due. They can also rent out the property and credit the proceeds to a NRO account. Similarly, NRIs can seek home loans through their power of attorney holder and documents can be signed on their behalf while investing in property. They can issue the EMI cheques on behalf of their relatives here as the Reserve Bank of India (RBI) has relaxed the norms of operation of joint accounts considerably recently. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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A significant development is the proliferation of housing finance companies and banks in countries abroad. In the Gulf, Dubai boasts of many housing finance companies and banks having arrangements with exchange houses. Home loans can be processed through overseas representative offices for NRIs. As a result, the power of attorney enables their relatives to interact directly with developers in India. A number of nationalised banks have remittance arrangements with the exchange houses. The RBI also said that any citizen who was earlier residing in a foreign country can own or transfer property or other assets in that nation if it was acquired during the time of his residence there. A person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any property situated outside India if such currency, security or property was acquired, held or owned when he was resident outside India or inherited from a person who was resident outside India. Similarly, returning NRIs can retain and reinvest the income earned on investments made under the Liberalised Remittance Scheme. There was lack of clarity earlier as to whether the income earned on assets held abroad by NRIs who have returned to India for permanent settlement and assets held outside India through Liberalised Remittance Scheme are required to be realised and repatriated to India. Now, the RBI has clarified that income and sale proceeds of assets held abroad need not be repatriated to India and can be retained and invested outside India.NRIs and PIOs can repatriate sale proceeds of immovable property acquired in India – (Immovable property acquired out repatriable foreign funds) to the extent of repatriable funds paid for acquiring the property, without any lock-in period. In case of residential property, the repatriation is restricted to two residential properties. (Immovable property acquired out of rupee funds) to the extent of USD 1 Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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million per calendar year out of balances held in their NRO account, with a lock-in period of 10 years. Indian economy has given a feel good factor to the NRIs, especially in the real estate sector. Many avenues are being created as well as schemes being fashioned for them to maximize investments from abroad. All persons residing outside India holding Indian passports and also people of Indian origin have been granted permission by the Reserve Bank of India (RBI) to invest in both residential and commercial properties in India. Markets have stabilized and there is an impressive amount of interest in this segment. NRIs are quick to invest in properties in India where they see an opportunity for a good deal. On the anvil is a single-window investment promotion council planned by the government, which will undertake investment promotional activity. This will involve making extensive contacts with potential investors, lobbying and interacting with individual companies so that the overseas Indian finds a suitable investment environment.To an NRI, a base in the homeland also brings with it a sense of security. The number of NRIs who are investing in property for sentimental reasons and for better investment returns is quickly multiplying. The government including RBI and Foreign Exchange Management Act (FEMA) has liberalized the rules and regulations for the NRIs to make investment in real estate. Liberalization along with the added advantage of repatriation of the capital invested and even the rental proceeds under the circumstances prescribed by RBI have also encouraged NRI investments in real estate. Capital gains can be taken back after paying capital gains tax.
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Apart from India being a safe destination, 10 to 12 per cent returns on the investments are assured.
3.12
DIFFERENT TAX BENEFITS AVILABLE TO NRIs
Bank Deposits investment in shares, units of Mutual Funds etc. are exempt from wealth tax in India.
Interest earned on NRE and FCNR accounts is completely taxfree.
In 1997, gift tax was abolished. So both the donor as well as the recipient did not have to pay any tax on the gifts received. Consequently people started misusing the vacuum left behind by scrapping of gift tax. There was a widespread transfer of insincere gifts from the non-relatives. In order to fill up this void, Section 56 (2)(v) of Income Tax Act was passed in 2004.As per Section 56 (2)(v) of the Income Tax Act , any amount exceeding Rs 25,000 obtained by a person or a Hindu Undivided Family (HUF) without any consideration from non-relative would be taxed. The only cases exempted were the gifts given during marriage, inheritance left behind in a will or if the payer has died.
3.13
TAX PORVISIONS AND CONCESSIONS FOR NRIs
Residents in Dubai and the UAE do not have to pay income tax. There’s an all round good feeling about this that attracts people from all over. When it comes to NRI, the feeling is doubly good. They don’t have to pay tax back home for income earned abroad. But those earning an income from investments made in India have to be attentive to taxes that accrue on them. What attract tax are the non-resident’s investments in shares, debentures, deposits and properties in India. The exemption limit is Rs. 160,000. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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49
Income Tax
Under the Income Tax Act, an NRI is a person who has stayed outside India for 182 days or more in a financial year (from April 1 to March 31). If a person have come back after being an NRI for nine consecutive years, then he is an R-NOR (Resident but Not Ordinarily Resident), and can still obtain some of the benefits for two consecutive financial years. An individual can also obtain NRI benefits if he has been in India for not more than 729 days during the preceding seven financial years. NRI’s don’t need to think about income earned outside the country, until and unless the organization the individual is employed with is Indian. Neither does the person have to think twice before parking money in a Non-Resident External (NRE) account. However, interest accrued on a Non-Resident Ordinary Account (NRO) is taxed at the rate of 30.9%, is deducted by the bank at source. Also once income is earned on money (convertible foreign exchange) invested in India, the question of tax arises. These are called the Foreign Exchange Assets (FEA) and the categories are: a)
Shares in Indian Company.
b)
Debentures issued by a Public Limited Company
c)
Deposits in a Public Limited Company
d)
Securities of the Central (federal) Government.
e)
Any other notified asset
The interests gained from these investments are taxed at a flat rate of 20%. And profit out of the long term capital gains that is, selling a capital asset such as a property, gold, after holding it for 36 months, attract a flat tax of Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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10%. Similar gains from equity shares and equity mutual funds are tax exempt if held for more than 12 months. But if sold before 12 months, there is a short-term capital gains tax of 10%. Capital gains are determined at the rate of exchange on the date of sale. But there is a catch here. The sale of these investments is tax-exempt, if the sale proceeds are reinvested in similar investments within six months. If the sale proceeds of these assets are partially re-invested, then the exemption is proportionate to the amount re-invested. 3.13.2
Filing Returns
But, if the income from foreign exchange assets and long-term capital gains is the only income of an NRI, then there is no need to file a return. In calculating the total income on any foreign exchange asset, no deduction is allowed in respect of any expenditure or allowance under any provision of the Act. Tax returns need to be filed only if the individual’s Indian income including the rent is more than Rs. 160,000. One may also file for tax refunds if the NRI had his taxes deducted at source and his income was less than the exemption limit of Rs. 160,000. Moreover, as Rajesh Singla, a New-Delhi based Chartered Accountant specializing on tax issues, says: “A Non- Resident Indian may also elect by these provisions for any assessment year by furnishing to the assessing officer the return of income for that assessment year and declaring therein that these provisions shall not apply to him for that assessment year. If he does so, then his total income and tax will be computed in accordance with the normal provisions of the Act”. Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
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In other words, an NRI may choose to be assessed as either an NRI or as an Ordinary Indian Resident. This is particularly beneficial for low-income group NRI’s who will pay less tax for the chosen assessment year, if he chooses to be taxed as an ordinary Indian. In such a case, the Non-Resident has to file a declaration with his return of income, that these provisions would not be applicable to him. The normal provisions of the Income Tax Act would be applicable with respect to the mentioned investment incomes. There are more ways of saving taxes on long-term capital gains. That is, by investing in the following products, though it’s important to note that all are Foreign Exchange Assets, that is, bought with convertible Foreign exchange.
Certain Mutual Funds such as those of UTI ( Unit Trust of India)
Some notified savings certificates for NRI’s, such as, National Saving Certificate VI and VII issues are notified.
NRI Bonds 1988 and NRI Bonds (second series)
NRI residing in countries with a Double Taxation Avoidance Agreement with India (UAE is one of them) may also obtain tax benefits by providing proof of residency form the country of residence while opening a bank account in India.
3.13.3
Provisions
a)
Tax on certain NRI Incomes:
U/S 115 A: Tax on dividends, royalties and fees for technical services.
U/S 115 AC: Tax on income from bonds or GDR purchased in foreign currency or capital gains arising from their transfer.
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U/S 115 AD: Tax on income from securities or capital gains arising from their transfer.
U/S 115 BBA: Tax on sportsmen.
b)
Special Provisions for Certain NRI incomes:
U/S 115E: Tax on investment income at the rate of 20 percent and long term capital gain at the rate of 10 percent.
U/S 115F: Capital gains on transfer of Foreign Exchange Assets not to be charged in certain cases.
U/S 115 I: Provisions of Chapter not to apply if NRI so chooses.
3.13.4
Investing and Savings
a)
Investments:
Invest in a residential house by taking out a housing loan. There is a deduction of interest up to Rs. 150,000 (Dhs. 11,800) if the house is self occupied and full interest if it’s let out.
Invest in Shares/Mutual Funds: dividends and long-term capital gains are exempt.
b)
Presumptive Tax Concessions:
U/S 44 B: Profit from shipping business taxable at the rate of 7.5 percent of income of India.
U/S 44 BBA: profit from business of aircraft at the rate of 5 percent of income in India.
U/S 44 C: Head office expenditure subject to conditions.
U/S 44 DA: Special provisions for computing income by way of royalty and fee for technical services.
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CHAPTER – 4
ANALYSIS AND INTERPRETATION Analysis is the process of placing the data in the ordered form, combining them with the existing information and extracting the meaning from them. In other words, analysis is an answer to the question “what message is conveyed by each group of data “. Data, which are otherwise raw facts and are unable to give a meaningful information. The raw data become information only when they are analyzed and when put in a meaningful form. Interpretation is the process of relating various bits of information to other existing information. Interpretation attempts to answer “what relationship exists between the findings to the research objectives and hypothesis framed for the study in the beginning”.
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Data Analysis and Interpretation
Table 4.1
55
Age of Respondents
Age Group
No. of Respondents
Per cent
Below 25
30
15.0
26-35
58
29.0
36-45
43
21.5
46-55
37
18.5
Above 55
32
16.0
Total
200
100
(Source: Field survey)
Figure 4.1
Age of Respondents
29.00% 30.00% 25.00% 20.00%
21.50% 15.00%
18.50%
16.00%
15.00% 10.00% 5.00% 0.00%
Below 25yrs
26-35 yrs
36-45 yrs
46-55 yrs
Above 55yrs
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: From the above table it is very evident that majority of the respondents belong to the age group of 25 – 35 years. Out of the total number of respondents, 58 of them belong to the age group of 25 -35 years, 43 of the respondents belong to the age group of 35 -45 years and 37 of them belong to the age group of 45-55 years, but only 32 of them belong to the age group above 55 years and 30 of the respondents is below 25years. Out of the total number of respondents, 15.0 percent of the respondents belong to the age group below 25 and 29.0 percent of the respondents belong to the age group of 25 – 35 years. 21.5 per cent of the respondents constitute the age group of 35-45 years, 18.5 per cent of them belong to 45- 55 years age group and 16 per cent of them belong to the age group of above 55 years. So it is very clear that the most of the respondents belong to the age group of 25 – 35 years.
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Data Analysis and Interpretation
Table 4.2
57
Employment Status No. of Re-
Category
spondents
Per cent
Salaried
129
64.8
Professional
21
10.5
Business
26
13.0
Others
23
11.5
Total
200
100
(Source: Field survey)
Figure 4.2
Employment Status
Others 12% Business 13% Professional 10%
Salaried 65%
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Data Analysis and Interpretation
Interpretation: Table 3.2 indicates that most of the respondents are from the working or employed class. The respondents were given four options to choose from: Salaried, Professional, Business and Others. Others here represent the retired and the homemakers who are investors. Out of the 200 respondents, 129 of them form the salaried class, 26 of them belong to the business class, and 23 of them belong to the group ‘Others’, which includes retired and house wives. Only 21 of the respondents are from the professional class. From the above pie chart, it is very clear that 64.8 per cent of the respondents were salaried, 10.5 per cent of them belong to the professional group, 13.0per cent of the respondents belong to the business class and 11.5 per cent of them are house makers or retired. Therefore, from the above table and chart it is very clear that investments are not very prominent with the house makers but it’s very prominent among the salaried and the business class.
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Data Analysis and Interpretation
Table 4.3
59
Income wise Classification Per
Range of Income
No. of Respondents
Below AED 1,000
51
25.5
AED 1,001 – AED 5,000
70
35.0
AED 5,001 – AED 10,000
47
23.5
Above AED 10,000
32
16.0
Total
200
100
cent
(Source: Field survey)
Figure 4.3
Income wise Classification:
35.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
25.50%
23.50% 16.00%
Below AED 1000
AED 1001 5000
AED 5001 10000
Above 10000
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The income of the respondents was also analyzed to find out the income level of the respondents. There were given four options: below AED 1,000, Between AED 1,000 and AED 5,000, between AED 5,000 and AED 10,000 and above AED 10,000. Table 3.3 points out that Out of the total number of respondents, 70 of the respondents belong to the income group of AED 1000 – AED 5000. 51respondents belong to the first group, i.e., below AED 1000, and 47 of the respondents belong to the third group, i.e., income between AED 5000 – 10000 and only 16 of the respondents belong to the income group above AED 10,000. From the above table and chart it is very clear that 25.5 per cent of the respondents were from the income group below AED 1,000 and 35.0 per cent of the respondents belong to the income group of AED 1000- 5000 but only 23.5 per cent of the respondents were of the income category of AED 500010000 and only 16.0 per cent of the respondents belong to the income group of above AED 10000.
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Data Analysis and Interpretation
Table 4.4
61
Saving Objective:
Occupation
No. of Respondents
Per cent
Children’s Education
12
6
Growth Plan
72
36
Retirement Plan
48
24
Health Care Expenses
8
4
Home Purchases
40
20
Others
20
10
TOTAL
200
100
(Source: Field survey)
Figure 4.4
Saving Objective:
40%
36%
30%
24%
20% 10%
20% 6% 4%
10%
0%
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked about their savings objectives and they were given six options to choose from and they were Children’s Education, Growth Plan, Retirement Plan, Health Care Expenses, Home Purchase and Others. Here ‘Others’ represents investment made by investors for marriage purposes or for wealth maximization. Table 3.4 indicates that Out of the total number of respondents, 72 of the respondents have growth plan as their savings objective, 48 of the respondents have retirement plan as their savings objective, 40 of them wanted to save to buy or build a home, 12 of the respondents wanted to save for children’s education and 8 of the respondents had health care expenses of the future as their objective and 20 of them had different other objectives to save other than the above mentioned. From the above figure, it can be clearly concluded that, majority of the respondents wanted to save for future growth prospects. i.e., 36 per cent of the respondents had growth as their savings objective, 24 per cent of them had retirement as their savings objective and only 4 per cent of the respondents save for the purpose of dealing with the health care expenses they have to bear in future. 20 per cent of the respondents save for the purpose of buying or building up a home and 10 per cent of them had other savings objectives other than mentioned. 6 per cent of the respondents wanted to save for their marriage or as wealth maximization objectives.
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Data Analysis and Interpretation
Table 4.5
63
Investment Objectives: No. of Respond-
Investment Objectives
ents
Income & Capital appre-
Per cent
46
23.0
Growth & Income
44
22.0
Long-term growth
79
39.5
Aggressive Growth
31
15.5
TOTAL
200
100
ciation
(Source: Field survey)
Figure 4.5
Investment Objectives:
39.50%
40.00% 30.00%
23.00%
22.00%
20.00%
15.50%
10.00% 0.00% Income & Capital
Growth & Income
Long-term Growth
Aggressive Growth
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked about their investment objectives and they were given four options, Income and Capital appreciation, Growth and Income, Long-Term Growth and Aggressive Growth. Out of the total number of respondents,79 of the respondents had long-term growth as their investment objective, 46 of the respondents had income and capital preservation as their investment objective. 44 of the respondents invest for their growth and income and 31 of them had aggressive growth as their investment objective. Out of the 200 respondents, 23.0 per cent of the respondents have income and capital appreciation as their investment objective, 22.0 per cent of them have growth and income as their investment objective and 39.5 per cent of the respondents had long-term growth as their investment objective. But only 15.5 per cent of the respondents have aggressive growth as their investment objective. It is very clear from the above table and chart that long- term growth of the respondent is one and the major reason why they choose to invest.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
64
Data Analysis and Interpretation
Table 4.6
65
Frequency of Investment in India:
Frequency
No. of Respondents
Per cent
Monthly
21
10.5
Quarterly
52
26.0
Half yearly
56
28.0
Annually
71
35.5
Total
200
100
(Source: Field survey)
Figure 4.6
Frequency of Investment in India:
40.0%
35.5% 26.0%
30.0% 20.0%
28.0%
10.5%
10.0% 0.0%
Monthly
Quarterly
Half-Yearly
Annually
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The above table and chart helps to understand the frequency of investment made by the investors in India. The respondents were given four options and they were: Monthly, Quarterly, Half-yearly and annually. Out of 200 respondents, 71 of the respondents make an investment annually, 56 of them invests half yearly and 52 of the respondents invest quarterly but only 21 of the respondents invest monthly. From the above chart it is very clear that most of the respondents invest annually, say in the form on fixed deposits, installments to be paid for insurance or real estates. 35.5 per cent of the respondents invest annually, 28 per cent of them invest half yearly and 26.0 per cent of them invest quarterly and 10.5 per cent of them invest monthly
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
66
Data Analysis and Interpretation
Table 4.7
67
Financial Advisor
Frequency
No. of Respondents
Per cent
Yes
169
84.5
No
31
15.5
TOTAL
200
100
(Source: Field survey)
Figure 4.7
Financial Advisor:
No 0.16
Yes 0.85
`
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked whether they have a financial advisor who prompted them to invest in the different investment avenues available in India. Most of the respondents have a financial advisor, who has advised them to invest in the different investment avenues available for the purpose of savings and a steady income. Out of the 200 respondents, 169, i.e., more than Eighty percent of the respondents have taken the advice of their friends, banks, financial institutions and advertisements. And 31 of the respondents have not taken the advice of their friends or other financial advice providers, i.e., 15.5 percent of the respondents did not make their investments due to the advice provided by others.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
68
Data Analysis and Interpretation
Table 4.8
69
Who has been the Financial Advisors No. of Respond-
Advisor
ents
Per cent
Friends/ Relatives
37
22
Financial Consultants
32
18.9
Investment Institutions
47
27.8
Portfolio Departments in
53
31.3
169
100
Banks Total (Source: Field survey)
Figure 4.8
Who has been the Financial Advisor
40.0% 30.0%
22.0%
20.0%
18.9%
27.8%
31.3%
10.0% 0.0%
Friends/ Relatives
Financial Consultants
Investment Institutions
Portfolio Dept. in Banks
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: From the above table, the surveyor wanted to know the actual motivator for the respondent to invest. The respondents were given five options: Friends/Relatives, Financial consultants, Investment Institutions, Portfolio Department in Banks. Out of the total number of respondents, 53 of them made investments by taking the advice from the Portfolio Departments of Banks, 37 of them of them took the advice from their friends or relatives and 32 of respondents took the advice from financial consultants to invest in the various investment avenues available in India and 47 of them took advice from investment institutions. From the above figure, it is very evident that majority of the respondents took advice from Portfolio Departments in Banks which help them to decide the best investment avenue that would suit their personal investment strategy. Out of the 200 respondents, around 31.3 per cent of the respondents took advice from the portfolio departments of the banks, 27.8 per cent of them took advice from the investment institutions especially formed for this purpose. 22 per cent of the respondents take advice from their friends or relatives and only 18.9 per cent of them took investment advice from financial consultants.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
70
Data Analysis and Interpretation
Table 4.9
71
Investment Portfolio of the Respondents
Investment
Not In-
% of Invested
vested
People
139
61
69.5
84
116
42.0
73
127
36.5
Mutual Funds
70
130
35.0
Life Insurance
150
50
75.0
Real Estate
90
110
45.0
Gold
142
58
71.0
Invested
Portfolio Bank Deposits Post Office Savings Shares/Bonds/ Debentures
(Source: Field survey) Figure 4.9 80.0% 60.0% 40.0%
Investment Portfolio of the Respondents 69.5%
75.0% 42.0%
36.5%
35.0%
71.0% 45.0%
20.0% 0.0%
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked to select from the given options to make up their present investment portfolio. The respondents were given six options: Bank Deposits, Post Office Savings, Shares, Mutual Funds, Life Insurance, Real Estate and Gold. Out of the 200 respondents, 139 of them had invested in Bank as Deposits and 61 of them did not deposit in bank. That is, around 69.5 per cent of them had bank deposits included in their investment portfolio. 84 of the respondents had investments as Post Office Savings, mainly women, and 116 of them did not include this option in their respective portfolios. So, from the above table it is very clear that only 42per cent of them have investments in post office savings. From the total number of respondents, 127 of them had not invested in shares but only 73 of them opted for that investment option. i.e., only 36.5per cent of them had invested in Shares. 130 of them had not invested in mutual funds, and only 70 of them, out of the total number of respondents, invested in mutual funds, which means, only 35per cent of the respondents had investments in mutual funds. The interesting fact is that 150 of the respondents had an investment in the form of Life Insurance and only 50 of them dint have that in their investment portfolio. 75.0 per cent of the respondents had life insurance included in their investment portfolio.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
72
Data Analysis and Interpretation
Out of the total number of respondents, 110 had not invested in Real estate and almost the same number of respondents, i.e., around 90 of them had invested in real estate. Thus 45.0 per cent of the respondents had included Real estate as one of their investment options. 142 of the respondents had invested in gold maybe in the form of jewelry. Only 58 had not invested in this form of investment option available. i.e., 71per cent of them had invested in gold.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
73
Data Analysis and Interpretation
Table 4.10
74
NRIs Awareness level towards the various investments in India
Options
No of respondents Aware of the investment alternatives
Per cent
200
No of respondents not aware of the investment alternatives Nil
Bank Deposits Shares/ Con-
67
133
33.5
Mutual Funds
103
97
51.5
Bonds- invested
84
116
42.0
194
6
97.0
41
159
20.5
68
132
34.0
100
vertible Debentures/ NonConvertible Debentures
out of NRO/ FNCR/NRE Immovable Property Partnership concern in India Deposits in Indian Companies through NRO accounts (Source: Field survey)
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Figure 4.10
75
NRIs Awareness level towards the various investments in India
100.0%
100.0%
50.0%
97.0% 33.5%
51.5%
42.0% 20.5%
0.0%
34.0%
Interpretation: The respondents were then asked a question which would help the surveyor to determine the awareness level of the NRIs towards the various investment options available to them in their home country. The respondents were asked to mark those investments which were familiar or which they were aware of. The different investment options given were: Bank deposits, Shares/ Convertible Debentures/ Non- Convertible Debentures, Mutual Funds, Bondswhich is invested out of the NRO/FNCR/ NRE accounts, Immovable property, Propitiatory/ Partnership concern in India, deposits in Indian companies through NRO accounts. There was no doubt about the awareness level of the bank deposits among the NRIs. The 200 respondents were aware of the bank deposit schemes available in India for them,. Only 67 of the respondents of them were aware of shares/ convertible or non-convertible debentures available for NRIs in India. But around 103 of the respondents were aware of the Mutual Fund Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
scheme available in India through the Banks and various other financial institutions. 84 of the respondents had knowledge about the Bond scheme which was invested out of the NRO/FNCR/NRE accounts of the NRIs and 41 of the respondents were aware of an investment option available in the form of being a partner in an Indian company. But majority of the respondents, i.e., 159 of them were not aware of this option. Out of the total number of respondents, only 68 of them knew that they could deposit their earnings in an Indian company. But 132 of them were not aware of this option. Out of the total number of respondents, 100 percent of them were aware of the bank deposits available in India for NRIs, only 33.5 percent of the respondents were aware of the shares/convertible or non-convertible debenture option. But 51.5 percent of the respondents were aware of the Mutual Fund scheme and 97 per cent of them had good knowledge and awareness about the immovable property, another investment alternative, available to them. Only 42 per cent of the respondents were aware that they could invest their hard earned money in Bonds which can be invested out of their NRO/FNCR/NRE accounts and only 34 per cent of them were aware that they could deposit their earnings in Indian companies through their NRO accounts. 20.5 per cent of them were aware that they could invest in the form of a partnership with an Indian Company. From the above table and chart, it is very evident that the investors or the NRIs lack sufficient information about the various investment options available to them in India. Thus our government, banks and even the private financial institutions should take a step in creating awareness and also educating the investors about the diverse investment portfolios.
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76
Data Analysis and Interpretation
Table 4.11
77
Level Of Satisfaction With the Investment Made
Level of Satisfaction
No. of Re-
Per cent
spondents Highly Satisfied
72
36
Satisfied
88
44
Unsatisfied
40
20
TOTAL
200
100
(Source: Field survey)
Figure 4.11
Level Of Satisfaction With the Investment Made
Unsatisfied, 20%
Highly satisfied, 36%
Satisfied, 44%
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The above table shows the respondents reaction when asked about the level of their satisfaction with their investment they have made. The respondents were given three options to choose from Highly Satisfied, Satisfied and Unsatisfied. Out of the total number of respondents, 72 of them were highly satisfied with the investments they had made in India. 88 of them were satisfied with the investment they have made and 40 of them were unsatisfied with the investment they have made. From the above table and pie chart it is very clear that majority of the respondents are highly satisfied with the investment made in home country. That is around 36 per cent of the respondents are highly satisfied with the investments they have made, 44 per cent of the respondents are satisfied with the investments and only 20 per cent of them are unsatisfied with the investments they have made in home country. So majority of the NRI’s who were the part of this survey were happy with the investments they made in India in different investment alternatives available to them, i.e., around 160 of the respondents were happy with the investments they have made.
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78
Data Analysis and Interpretation
Table 4.12
79
Investment Experience:
Investment experi-
No. of Respond-
Per cent
ence
ents
Beginner (no invest-
25
12.5
71
35.5
60
30.0
Experienced Investor
44
22.0
TOTAL
200
100
ment experience) Moderately Experienced Investors Knowledgeable Investors
(Source: Field survey)
Figure 4.12 Investment Experience:
35.5%
40.0%
30.0%
30.0% 20.0%
22.0%
12.5%
10.0% 0.0% Beginner
Moderately Experienced Investor
Knowledgable Investor
Experienced Investor
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked about their personal experience in investing in the different investment avenues. The respondents were given four options: Beginner or no investment experience, moderately experienced investor, knowledgeable Investor and Experienced Investor. Out of the total number of respondents, 60 of the respondents classified themselves as knowledgeable investors, 71 of them have classified themselves into the group of moderately experienced investor. Only 44 of the respondents have graded themselves as experienced investor and 25 of them classified themselves as a beginner or no investment experience. From the total number of respondents, 12.5 per cent of them classified themselves as a beginner or a person with no prior experience in investing, may be like college students or housewives. 35.5 per cent of the investors have classified themselves into the category of moderately experienced investor. These investors are those who have experience in investing in Mutual funds and bank deposits. 30.0 per cent of the respondents have graded themselves as Knowledgeable experienced investor. They are those investors who have individually bought and sold stocks or bonds of corporate bodies. Only 22.0 per cent of the respondents graded themselves as experienced investors. They are those who have experience in all the investment avenues available in the market and also have an experience in buying and selling of stock, they have exercised stock options or stock warrants and have also traded stock options.
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80
Data Analysis and Interpretation
Table 4.13
81
Risk wise Classification
Risk Preference
No. of Respondents
Per cent
Low Risk
68
34
Medium Risk
82
41
High Risk
50
25
Total
200
100
(Source: Field survey)
Figure 4.13
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Risk wise Classification
34%
41%
25%
Low Risk
Medium Risk
High Risk
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were asked to determine the level of risk they are likely to undertake through their investments. The respondents were given three options: Low risk, Medium Risk and High Risk. Out of the total number of respondents, 82 of the respondents prefer medium risk attached to their investments 68 of the respondents prefer low risk attached to their investments and only 50 of the respondents preferred high risk. So it’s very evident that most of the investors prefer medium level of risk to be attached to their investments, i.e., 41 per cent of the respondents prefer medium level of risk whereas 25 per cent of the investors do not mind attaching high risk factor to their investments and 34 per cent of the respondents preferred their investments to have a low level of risk. Low risk investments would be fixed deposits and life insurance policies. Medium risk would include the real estate, mutual funds, unit trust etc., and whereas high risk would involve shares.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
82
Data Analysis and Interpretation
Table 4.14
83
Options on the Comfort ability Level in the Decline Value of Investments for Higher Returns Options
No. of Respond-
Per cent
ents Agree
32
16.0
Disagree
93
46.5
Strongly Disagree
75
37.5
TOTAL
200
100
(Source: Field survey)
Figure 4.14
Options on the Comfort ability Level in the Decline Value of investments for Higher Returns
Strongly Disagree, 37.50%
Agree, 16.00%
Disagree, 46.50%
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The respondents were given a statement, ‘“I’m comfortable with investments that may frequently experience large declines in value if there is a potential for higher returns.” The surveyor wanted to measure the risk return attitude of the respondents through these questions. The respondents were given three options: Agree, Disagree and Strongly Disagree. Out of the total number of respondents, 75 of them strongly disagreed with the statement, i.e., they would never opt for an investment avenue which would earn higher return but there might be a decline in the value. 93 of the respondents totally disagree with the statement, i.e., it is very clear that they wouldn’t opt for such risky investment avenues. But 32 of the respondents agreed to the statement and were willing to opt for an investment avenue which would face a decline in the value but for a higher return. From 200 respondents, only 16.0 per cent of them agreed with the statement, which reflected on their personal attitude towards taking risk. These respondents are willing to take the risk for earning a higher return from their investment. 46.5 per cent of the respondents disagree with the statement and 37.5 per cent of them strongly disagree with the statement. These respondents are not willing to take risk for a higher return.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
84
Data Analysis and Interpretation
Table 4.15
85
Withdrawal From the Investment Account
Period
of
With-
No. of Respond-
Per cent
drawal
ents
Less than Five years
104
52
Six – Nine years
55
27.5
Ten years & above
41
20.5
200
100
TOTAL (Source: Field survey)
Figure 4.15
60.0%
Withdrawals from the Investment Account
52.0%
50.0% 40.0% 30.0% 20.0%
27.5% 20.5%
10.0% 0.0%
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
Interpretation: The surveyor wanted to know the approximate withdrawal time the investors are planning to make. The respondents were given three options: three- five years, six – nine years and ten years or more. Table 3.15 indicates that Out of the 200 respondents, 104 of them are planning to withdraw from their investment accounts within three – five years of investment. 55 of them were planning to withdraw within six- nine years of their investment and 41 of the respondents planned to withdraw over a period of ten years or more. From the above table and chart, the surveyor can come to a conclusion that the respondents prefer to reap back the profits or withdraw from their investments within a period of three – five years. 52 per cent of the respondents planned to withdraw within three – five years of investment and 27.5 per cent of the respondents planned to withdraw within six to nine years. 20.5 per cent of the respondents planned to withdraw from their investment within a period of ten or more years.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
86
Data Analysis and Interpretation
87
CHI-SQUARE ANALYSIS 1. Age & Risk Profile Null Hypothe-
There is no significant relationship be-
:
sis
tween Age and Risk profile
( H0 ) Alternate Hy-
There is significant relationship between
:
pothesis
Age and risk profile.
( H1 ) Table 4.16
Relationship between Age Group & Risk Profile Risk Profile Observed Frequency Age
Total
MediLow
um
High
Risk
Risk
Risk
Below 25 Years
8
15
7
30
26 - 35 years
2
20
14
57
36 – 45 years
13
19
11
43
Above 45 years
24
28
18
70
Total
68
82
50
200
Expected Frequency Below 25 Years
10
12
8
30
25 - 35 years
20
24
14
58
35 - 45 years
15
18
11
43
Above 45 years
23
28
17
69
Total
68
82
50
200
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
88
Chi- Square (2) Value
= 2.82
Level Of Significance
= 0.05
Degrees Of Freedom
= 6
Table Value
= 12.6
Interpretation: Calculated 2 Value is less than the Table Value. So Null Hypothesis (H0) is accepted. Therefore, there is no significant relationship between Age group and Risk Profile.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
89
2. Income and Frequency of Investment. Null Hypothesis
There is no significant association be-
:
tween Income and Frequency Of In-
( H0 )
vestment Alternate
Hy-
There is significant association between
:
Income and Frequency Of Investment.
pothesis ( H1 )
Table 4.17 Relationship between Income & Frequency of Investment Frequency Of Investment Observed Frequency Income
Monthly
Quarterly
Annually
Total
11
12
28
51
22
19
28
69
23
10
15
47
10000
15
11
6
32
Total
70
52
78
200
Below AED 1000 AED 1000 – AED 5000 AED 5000 – AED 10000 Above AED
Expected Frequency 18
13
20
51
24
18
27
69
16
12
18
47
10000
11
8
13
32
Total
70
52
78
200
Below AED 1000 AED 1000 – AED 5000 AED 5000 – AED 10000 Above AED
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
90
Chi- Square (2) Value = 16.2 Level Of Significance = 0.05 Degrees Of Freedom
= 6
Table Value
= 12.6
Interpretation: Calculated 2 Value is greater than the Table Value. So Null Hypothesis ( H0 ) is Rejected. Therefore, there is significant relationship between Income and Frequency of Investment.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
91
3 Income & Risk Profile Null Hypothesis
:
and Risk;
( H0 ) Alternate
Hy-
:
There is a relationship between Income and Risk
pothesis ( H1 ) Table 4.18
There is no relationship between Income
Relationship between Income & Risk Profile Risk profiles Risk Profile Observed Frequency Medium
High
Low Risk
Risk
Risk
Total
Below AED 1000
24
18
10
51
AED 1000 – AED 5000
20
31
19
69
AED 5000 – AED 10000
15
20
12
47
Above AED 10000
10
14
9
32
Total
68
82
50
200
Income
Expected Frequency Below AED 1000
17
21
13
51
AED 1000 – AED 5000
24
28
17
69
AED 5000 – AED 10000
16
19
12
47
Above AED 10000
11
13
8
32
Total
68
82
50
200
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
92
Chi- Square (2) Value
= 5.90
Level Of Significance
= 0.05
Degrees Of Freedom
= 6
Table Value
@ 5per cent
= 12.6
Interpretation: Calculated 2 Value is less than the table value @ 5 per cent level greater than the Table Value @ 5per cent level of significance. So Null Hypothesis ( H0 ) is accepted. There is no relationship between income and risk profile.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
93
4 Occupation & Frequency of Investment Null Hypothesis
:
There is no significant relationship between occupation & frequency of In-
( H0 )
vestment Alternate
Hy-
:
tion & frequency of Investment
pothesis ( H1 ) Table 4.19
There is a relationship between occupa-
Relationship between Occupation & frequency of Investment. Frequency of Investment Observed Frequency Quarter-
Occupation
Monthly
ly
Annually
Total
Salaried
50
31
48
130
Professional
3
8
10
21
Business
7
8
11
26
Others
10
4
8
23
Total
70
52
77
200
Expected Frequency Salaried
46
34
50
130
Professional
7
6
8
21
Business
9
7
10
26
Others
8
6
9
23
Total
70
52
77
200
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
94
Chi- Square (2) Value = 5.93 Level Of Significance = 0.05 Degrees Of Freedom Table Value
= 6 = 12.6
Interpretation: Calculated 2 Value is greater than the Table Value. So Null Hypothesis ( H0 ) is Rejected. Therefore, there is significant relationship between Occupation and Frequency of Investment.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
95
5 Occupation & Risk Profile Null Hypothesis
:
tween occupation & Risk Profile
( H0 ) Alternate Hypoth-
:
There is a relationship between occupation & Risk Profile.
esis ( H1 ) Table 4.20
There is no significant relationship be-
Relation Between Occupation & Risk Profile Risk Profile Observed Frequency
Occupation
Low
Medium
Risk
Risk
High Risk
Total
46
53
31
130
al
6
9
6
21
Business
7
12
8
26
Others
9
8
6
23
Total
68
82
50
200
Salaried Profession-
Expected Frequency 44
53
32
130
al
7
9
5
21
Business
9
11
7
26
Others
8
9
6
23
Total
68
82
50
200
Salaried Profession-
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Data Analysis and Interpretation
96
Chi- Square (2) Value = 1.38 Level Of Significance = 0.05 Degrees Of Freedom Table Value
= 6 = 12.6
Interpretation: Calculated 2 Value is less than the Table Value. So Null Hypothesis ( H0 ) is Accepted. Therefore, there is no association between Occupation and Risk Profile.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Findings and Suggestions
97
CHAPTER – 5 FINDINGS AND SUGGESTIONS 5.1 Findings After conducting a thorough study on “Investment options available in India for NRI’s”. The following findings are:
Among the 200 respondents, 29.0% of them are of the age group 25 – 35 years.
The respondents who belong to the salaried class make more investments.
35.0% of the respondents are in the income level between 1000 – 5000 dirham’s.
Out of 200 respondents most of them had growth and retirement plan as their saving objective
Most of the respondents have income and capital appreciation as their investment objectives.
Most of the respondents make investments on annual basis.
84.5% of the respondents have financial advisors; they take advices from the portfolio departments in banks
Among the 200 respondents 75.0% of them have selected their investment portfolios as life insurance.
36% of the respondents are highly satisfied with the investments made by them.
And 44% of them are satisfied with the investment made. Only 20% of them are not much satisfied.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Findings and Suggestions
98
46.5% of the respondents disagree with the investments that may frequently experience large declines in value if there is a potential for higher returns.
Among the 200 respondents, 41% of them are medium risk takers; they need medium risk with medium return.
Out of 200 respondents 52% of them withdraw their investments before five years.
5.1.1
Investment Portfolio of Investors
About 75.0% of the respondents have invested in Insurance.
About 71% of the respondents have invested in Gold.
69.5% of the respondents have invested in Bank Deposits.
45.0% of the respondents have invested in Real Estate.
42% of the respondents have invested in Post Office Savings.
36.5% of the respondents have invested in Shares.
Only 35% of the respondents have invested in Mutual Funds.
5.1.2
Inter-relationship between Investor profile and Investment Preferences From the chi-square analysis, It is found that there is no relationship between
Income and Frequency of Investment
Occupation and risk profile. It is found that there is significant relationship between
Age and Risk Profile.
Income and Risk Profile.
Occupation and Frequency of Investment.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Findings and Suggestions
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Age and Safety in Investment.
Those who have invested in shares and mutual funds.
5.2
Suggestions
1.
As most of the respondents who have participated in this survey are salaried people, i.e., they earn a specific amount of salary monthly, thus they prefer to invest in risk free investment avenues available in India. Maybe that is the reason why most of them preferred to invest in Life Insurance, Gold and Bank Deposits. Most of the respondents are looking for a steady income and maximum avoidance of risk from the selected investment alternative. This is the main reason why there is less number of people who are willing to invest in Shares/ Bonds or Debentures. Thus the NRI’s should be introduced to a wider spectrum of investment avenues available in India, by providing them information needed through various financial agencies or consultants or through portfolio departments maintained by Banks.
2.
Most of the respondents who have participated in the survey are aware about some of the investment alternatives available in India for the NRI’s. Most of the investors are aware of bank deposits and real estate avenues open to them but they are not aware of the investment options like deposits in Indian companies, partnership with an Indian concern etc. thus the government, public and private companies should provide more detailed information about the investment alternatives. As the NRIs are not frequent visitors to their home country, they are not aware of the actual
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economic, political and social trends existing in the economy. They can also educate the NRIs through publishing journals and magazines exclusively for this purpose. Then conducting seminars specially designed for the specially designed for the NRIs. These would help the government to create awareness and also develop and motivate the NRIs to invest in their home country, rather than in the country in which they stay. 3.
The frequency of investment adopted by the NRIs is annually. The major reason being the lack of awareness they have about the different investment alternatives. They are reluctant to invest their hard earned money in those investments which they do not have sufficient information. Thus by conducting seminars, publishing journals, investors could be made more aware. Once sufficient information is available with the investors, they will have the confidence to invest and thus could be motivated to invest more frequently, maybe in shares/ bonds/ debentures or maybe in real estate sector. By providing awareness, the investors would be willing to take up a high level of risk also.
4.
There are many factors which influence an investor while taking an investment decision. According to the analysis done on the response of the investors, it can be ascertained that most of them invest for their long term growth.
5.
According to the analysis done, it has been proved that income; age and occupation of the respondents do not have any significant relationship with risk. But occupation of the respondent has a
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significant relationship with the frequency in which the investors invest in the different investment avenues available in our home country. Since the above mentioned parameters do not have a significant relationship with risk, housewives and college going students should be encouraged to invest in profitable investment opportunities (like post office schemes, shares etc). .
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Conclusion
6.0
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CONCLUSIONS:
The study was conducted on 200 NRI’s based on UAE to find out their attitude and perception towards the different investment alternatives available back home. The various factors identified in the study also helped in providing some valuable input regarding the investor’s pattern, their preference and Priorities. The study reveals that the investor has great preference for safety and this is proved by their investments in Life Insurance, Gold and Bank Deposits. The statistical analysis has helped the surveyor to have a deeper insight on the relationship between income, age and occupation on the risk preferences of the investors. The NRI investors are looking for investment alternatives that would help them to earn a steady income back home and also an investment alternative that does not have risk of loss attached to them. The survey also helped to analyze, the investors awareness about the various investment avenues available to them back home. Through the study it was evident that the investors are not fully aware of the options available to them. Thus through creating awareness and educating the NRIs about the investment alternatives, in which they can invest will help the individual as well as the country as a whole to develop.
Investor’s attitude and knowledge towards investment options available in India With special reference to UAE based NRI’s
Appendices
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Appendix A: QUESTIONNAIRE Dear Respondent, I’m Venu.T, student pursing MBA – Finance from Birla Institute of Technology. As a part of my curriculum, This questionnaire is prepared to do my dissertation on the topic, “Investors attitude and Knowledge towards investment options available in India with special reference to UAE based NRI’s.” The data being collected are solely for academic purpose. I request you to kindly extend your co-operation. Name:Age:Gender:1) What is your employment status? o Salaried o Professional o Business o Others 2) What is your estimated monthly income? o Below AED 1,000 o AED 1,000 – AED 5,000 o AED 5,000 – AED 10,000 o Above AED 10,000 3) What is your purpose for savings? o Children’s Education o Growth Plan o Retirement Plan o Health care Expenses o Home purchase o Others 4) What are your investment portfolio objectives? o o o o
Income and capital preservation Growth and Income Long-term growth Aggressive growth
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5) How frequently do you invest in India? o o o o
Monthly Quarterly Half- Yearly Annually
6) Do you consult a Financial Advisor? o o
Yes No
[ [
] ]
7) If Yes, with whose financial advice did you start your investment? o o o o
Friends/Relatives Financial consultants Investment institutions Portfolio Department in Banks
8) Which of the following assets do you currently have, in your investment portfolio? o o o o o o o
Bank deposits Post Office Shares/ Bonds/ Debentures Mutual funds Life Insurance Real Estate Gold
9) If you have invested in Shares, which of the below sectors of investment avenues would be your preference? o o o o o o o o o
IT sector Textile sector Engineering sector Auto sector FMCG sector Chemical sector Pharmacy sector Banking sector Oil sector
[ [ [ [ [ [ [ [ [
] ] ] ] ] ] ] ] ]
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10) Rank the below investments according to your priority. o o o o o o o
Bank Deposits Post Office Shares Mutual Funds Life Insurance Real Estate Gold
[ [ [ [ [ [ [
] ] ] ] ] ] ]
11) Are you aware of the investment avenues as a NRI, please mark those products you are aware of. o o o o o o o
Bank Deposits Shares/ convertible debentures/ non-convertible debentures Mutual Funds Bonds- invested out of NRE/FCNR/NRO Immovable Property Proprietary/ partnership concern in India Deposits in Indian Companies through NRO accounts
12) Which of the following options best describes your satisfaction level on the investment made? o o o
Highly Satisfactory Satisfactory Unsatisfactory
13) What best describes your investment experience? o o o o
Beginner (no investment experience) Moderately experienced investor (mutual funds and bank deposits) Knowledgeable investor (has bought or sold individual shares of stock or bonds) Experienced investor (has traded stock options, exercised stock rights or stock warrants)
14) What would be the extend of risk composition you would like to have in your investment? o o o
Low Risk Medium Risk High Risk
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15) Do you Agree, Disagree, or Strongly Disagree with the following statement “I’m comfortable with investments that may frequently experience large declines in value if there is a potential for higher returns.” o o o
Agree Disagree Strongly Disagree
16) Rank the below factors which influence your investment decision? o o o o o
Safety Liquidity Regular income Capital appreciation High Return
[ [ [ [ [
] ] ] ] ]
17) Approximately, when do you plan to make your first withdrawal from your investment accounts? o o o
Three – five years Six – nine years Ten years or more
Bibliography
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Bibliography Books Investment Management- Preeti Sing-10th edition – Himalaya publication 2002. Investment Analysis and Portfolio Management – Prasanna Chandta – 2nd edition- Tata McGrawhill publishing Company,2005. Financial Management and Services – Gordon, Natarajan-5th edition – Himalaya Publishing House,2009. Websites www.economywatch.com http://www.sebi.gov.in/sebiweb/ http://www.rbi.org.in/scripts/BS_EntireSearch.aspx?searchString=nri%20in vestment http://www.prlog.org/11884280-rupee-depreciation-is-it-the-right-time-fornris-to-invest-in-india.html http://www.femaonline.com/nricms.php?id=1 http://jayesh.profitfromprices.com/invest_in_india_terms_faq.htm http://www.mynriclub.com/site/NRI-Account/Foreign-currency-Nonresident-Account-FCNR http://www.path2usa.com/nri-bank-accounts-nre-account-nro-account http://www.nriinvestindia.com/nri-india-mutual-funds.html
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