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Analytical Study of Investment Patterns and Investment Preferences of Retail

Investors Post COVID 19

Article in Seybold Report · October 2020

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Journal of Seybold Report ISSN NO: 1533-9211

Analytical Study of Investment Patterns and Investment Preferences of

Retail Investors Post COVID 19

Surabhi Kumthakar, Dr. Varsha Nerlekar

MIT-WPU, Faculty of Management, School of Management (PG)
[email protected], [email protected]
Article Type: Research Paper

Surabhi Kumthakar
Student, MBA (Finance), 2019-21
MITWPU, Faculty of Management, School of Management (PG)
Pune, Maharashtra
email id: [email protected]

Dr. Varsha Nerlekar, PhD

Associate Professor,
MITWPU, Faculty of Management, School of Management (PG)
Pune, Maharashtra
email id: [email protected]
ORCID: https://orcid.org/0000-0003-1185-8304?lang=en

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Abstract
Investing is an important aspect of an individual’s life. Although majority of India’s
population is the youth, there is a lack of awareness regarding investment avenues and its
importance. Moreover, in March 2020, India was hit by the COVID 19 pandemic. It had
an impact across the globe and every sector was affected due to the same.

The basic aim of this research is to analyze the impact of COVID 19 on the investment
preferences of retail investors and also on the investment industry in India. The returns
up to July 31st, 2020 are taken for the study. People have shifted to safer investment
avenues which carry zero or low risk. Investors have prioritized safety of their
investments over returns due to COVID 19. Therefore, we can see a spike in the gold
prices in 5 months. Though investing in gold does not give regular returns but the risk of
losing the invested money is negligible. Some of the financially aware investors have
also grabbed this opportunity of the dip in the market and invested during the pandemic.
The stock market has shown 70% recovery till the end of July 2020 from the dip in
March 2020.

To conclude, COVID 19 has a drastic effect not only on the investment industry in India
but also on all the other aspects of human life. The Indian markets have shown good
recovery in short span of time and will hopefully go back to normal soon.

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Introduction and Rationale:

An investment is the purchase of goods that are not consumed today but are used for
the future to create wealth. In finance, an investment is a monetary asset purchased
with the intention that the asset will yield income in the future or will later be sold at a
higher price. Investment is oriented toward future returns, and thus comes with some
degree of risk.

Most investors want to make investments in such a way that they want to get sky-high
returns in less time without the risk of losing any money. This is the reason why many
are always on the lookout for top investment options where they can double their
money in short period of time with little or no risk. In reality, risk and returns are
directly related and go hand-in-hand, i.e., higher the risk, higher is the return, and vice
versa. While selecting an investment avenue, one has to match the risk profile with
the risks associated with the product. There are some investments that carry high risk
but have the potential to generate higher returns than other asset classes in the long
term while some investments come with low-risk and therefore fetch lower returns.

Coronavirus or COVID 19 was first identified in December 2019 in Wuhan, China,

and has resulted in an ongoing pandemic. The first case of COVID-19 in India was
reported on 30 January 2020 in Kerala. On 2 March 2020, the BSE
SENSEX witnessed a flash crash due to the Union Health Ministry's announcement of
two new confirmed cases. A UN report estimated a trade impact of US$348
million on India due to the outbreak, making India one of the 15 worst affected
economies across the world. On 12 March 2020, the Indian stock markets suffered
their worst crash since June 2017 after WHO's declaration of the outbreak as a
pandemic. The lockdown has adversely have affected service sector like banks,
restaurants, food vendors, and food delivery providers at par with providing health
safety and medical sustenance.

The present research aims to study the investment pattern and preference of
investment avenues of retail investors after the COVID 19 pandemic.

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Research Objective
The objectives of this research are:
 To analyze the impact of COVID-19 on the Investment preference of the retail
Investors.
 To understand whether investors are willing to invest money during the pandemic
 To identify the investment preferences of investors, post COVID 19
 To analyze the changes in returns given by investment avenues due to the
pandemic.

Scope
 The geographical scope of this study is limited to Tier I and Tier II cities of India.
 To determine the relationship between uncertainty in the market and the change in
investing pattern of the investors.
 Most of the investors interviewed in this research have zero or very basic
knowledge of the stock market and mutual funds. They are informative about the
traditional investing methods.

Data collection and analysis

a. Respondents willing to change their portfolio post COVID 19?

Particulars Respondents Percentage

Yes 38 58.46

No 27 41.54

Total 65 100

Table 8.1

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42% Yes
58% No

Graph 8.1

The above table and graph shows that majority (58.5%) of the respondents will change their
portfolio post COVID 19. This indicates that the pandemic has an significant impact on the
investment preferences.

b. If yes, is the change in portfolio due to change in income during the pandemic?

Particulars Respondents Percentage

Yes 42 64.8

No 23 35.2

Total 65 100

Table 8.2

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35% Yes
No
65%

Graph 8.2

The above table and graph shows that 65% of the people’s income level has changed during
the pandemic which has impacted the investment preferences of the respondents. Therefore,
income has a significant impact on the investment preferences.

c. Had the income levels remained the same, would you still change the portfolio?

Particulars Respondents Percentage

Yes 12 19.4

No 18 27.4

Maybe 35 53.2

Total 65 100

Table 8.3

18%
Yes
No
54%
28% Maybe

Graph 8.3

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d. Rate according to preference of investment avenue pre COVID- 19

Mutual Fixed Income

Fixed Deposits Gold Real Estate
Funds Securities
Rank 1 28 11 11 9 6
Rank 2 8 19 18 14 6
Rank 3 9 15 18 10 13
Rank 4 8 12 13 19 13
Rank 5 12 8 5 13 27
Total 65 65 65 65 65
Table 8.4

30
25
20
15
10
5
0
Mutual Funds Fixed Deposits Fixed Income Gold Real Estate
Securities

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

Graph 8.4

According to the data collected, 28 respondents have ranked mutual funds as the top
investment avenue preference pre COVID19 followed by Fixed Deposits and Fixed
Income Securities like PPF, debt funds. Gold and real estate were least preferred pre
COVID 19.

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e. Rate according to preference of investment avenue post COVID- 19

Mutual Fixed Income

Fixed Deposits Gold Real Estate
Funds Securities
Rank 1 20 8 19 12 6
Rank 2 16 18 13 12 6
Rank 3 7 15 14 16 13
Rank 4 7 10 12 18 18
Rank 5 15 14 7 7 22
Total 65 65 65 65 65
Table 8.5
30
25
20
15
10
5
0
Mutual Funds Fixed Deposits Fixed Income Gold Real Estate
Securities

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

Graph 8.5

According to the data collected for investment preferences post COVID 19, respondents are
willing to invest in mutual funds followed by fixed deposits and gold. The least interested
investment avenue post COVID 19 is real estate.

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f. Which aspect to be given highest weightage for investments post COVID 19?

Particulars Frequency Percentage

Risk, market volatility 19 29.2

Liquidity 8 12.3

Returns 28 43.1

Time horizon 2 3.1

Tax benefits 8 12.3

Total 65 100

Table 8.6

12% Risk, market volatility

3% 29% Liquidity
Returns

13% Time horizon

43%
Tax benefits

Graph 8.6
The highest weightage while making investments post COVID 19 is given to the
returns by 43% of the respondents followed by risk and market volatility at 29%.
The time period of the investment is considered by only 3% of the respondents
making it the least popular choice.

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g. Preference of investing in mutual funds

Particulars Frequency Percentage

Mid cap companies 24 36.9

Small cap companies 13 20

Bluechip companies 28 43.1

Total 65 100

Table 8.7

37% Mid cap companies

43%
Small cap companies
Bluechip companies

20%

Graph 8.7

According to the data collected, mutual funds remain the most popular investment
avenue post COVID 19. 43% of the respondents would invest in blue chip
companies followed by mid cap companies (37%). Only 20% of the respondents are
willing to invest in small chip companies.

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h. Selection of scheme of mutual funds

Particulars Frequency Percentage

Dividend 8 12.3

Growth 24 36.9

Guaranteed return 18 27.7

A mixed basket 15 23.1

Total 65 100

Table 8.8

12%
23% Dividend
Growth
Guaranteed return
37%
28% A mixed basket

Graph 8.8

Regarding the scheme of mutual funds, growth plan remains to be the most popular (37%). It
is followed by guaranteed return plan (28%) and mixed basket (23%). Only 12% of the
respondents want regular dividend on their investment.

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 Measurement of reliability Test using Cronbach’s Alpha:

i) This method is used to test the reliability of items included in the factors.
ii) This test is done to make sure that the measurements are reliable for further uses.
iii) This is calculated using the Excel’s Data Analysis – Anova: Two-Factor without
Replication.
Using the above mentioned test, Cronbach’s Alpha is Calculated:
Reliability Statistics

Cronbach’s Alpha No. of Respondents

.852 65

Table 8.9
The Cronbach’s alpha is 0.852 which indicates a very high level of internal
consistency for the scale.

Table: -Anova: Two factor without Replication Results

ANOVA
Source of Variation SS df MS F P-value F crit
Rows 62 4 15.5 6.777778 3.45 2.408639
Columns 0 61 0 0 1 1.371138
Error 558 244 2.286885
Total 620 309
Table 8.11
Table: - Anova Results
 Cronbach’s Alpha Results:
Alpha = 1- MS of Error/ MS of Rows
Alpha = 1- 2.286885/15.5
Alpha = 0.852
 Hypothesis Test: -
H0: - There is no significant relation between the selection of Investment avenue pre
and post COVID- 19.
H1: - There is significant relation between the selection of Investment avenue pre and
post COVID- 19.

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t-Test: Paired Two Sample for Means

Variable
Variable 1 2
Mean 195 195
Variance 1013 738.5
Observations 5 5
Pearson Correlation 0.891692686
Hypothesized Mean Difference 0
df 4
t Stat 0
P(T<=t) one-tail 0.5
t Critical one-tail 2.13
P(T<=t) two-tail 1
t Critical two-tail 2.78
Table 8.13

The tabular value for significant level 0.05 with degree of freedom 4 is 2.776 and the
calculated t Critical two- tail is 2.78. Hence, Null hypothesis is rejected and alternate
hypothesis is accepted which is, there is significant relation between the selection of
Investment avenue pre and post COVID- 19.

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The changes in returns given by investment avenues due to the pandemic.

 As the pandemic was getting severe and the returns started to surge and the market
become highly volatile to invest and majority of the investment avenues started giving
poor returns.
 COVID 19 has a significant impact on the equity fund as compared to the debt funds.
 Many investors considered shifting to debt fund or hybrid fund to invest their money into
as Debt funds grow the wealth with little to no risk.
 In Debt mutual funds the funds are collected from the public and major portion of this
amount is invested in Government bonds, RBI Bonds and other fixed income securities.
Whereas in Equity Mutual funds major portion is invested in the stock market.
 The returns of debt mutual fund increased where as in equity mutual fund it has
decreased and it should be considered that the returns of the Equity mutual fund are on
the total AUM.
 In reality many investors who invested in equity mutual fund before the pandemic faced
huge losses but debt mutual fund had the benefit of safety on the funds invested.
 It is clear that debt funds are a safe haven. In spite of the global pandemic which has
adversely affected the entire world, debt funds have still given more than 5% returns
during the pandemic.
 In contradiction, equity funds have been significantly hit due to COVID 19. All of them
have given negative returns with as high as – 8% by HDFC Equity Fund. This fund also
has the highest NAV amongst the funds studied.
 There is a steep downfall in the Sensex and Nifty charts which are the base funds for
most of the mutual funds since the beginning of March 2020 due to COVID 19.
 Though till July and, the graph has shown recovery but it is still not up to the mark.
 Such a decline leads to a negative impact on investors regarding the stock market and
mutual funds and investors consider shifting to safer investment avenues.
 ICICI Prudential Bluechip Fund has the highest fund size of 22,880 crore. The NAV as
on July 31st, 2020 is 40.39 which is also one of the highest compared to other equity
funds.
 Due to COVID 19 the graph has shown a tremendous decline from March 2020.
 It hit the lowest on March 23, 2020 giving negative 30.61% returns.

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 The sharpe ratio and sortino ratio is also negative 0.06% indicating the performance of
the fund below the risk free rate. The investors are not being rewarded for taking on
additional risk.
 Investors have turned to gold as the COVID-19 Pandemic started to affect other
investment avenue and underpinned its status as a safe haven.
 The Metal is getting support from a long list of factors like geopolitical tensions are
rising, dollar becoming weaker and government and central banks worldwide have
unleashed vast stimulus and relief funds to try and boost economies.
 Fixed deposits are ideal for investors with very low risk appetite and are looking for
assured returns; usually the rate of interest is higher than what is offered for a savings
bank account.
 Currently also RBI reduced the lending rates due to COVID-19 pandemic and due to
that some of the FD interest rates came below saving bank account interest rates.

Findings

1. As seen in the data, majority of the people will change their portfolio post COVID 19.
This indicates the impact of market volatility on the investments. People are not
willing to take any short term risks and want to shift their investments into less
volatile and less risky avenues.
2. This change in portfolio is majorly due to changes in the income levels during the
pandemic period. Job loss, salary cuts, low business/no business are some factors
which have hampered the portfolio of investors.
3. In spite of change in income levels, many respondents have made investments even
during the pandemic in mutual funds, NSC, equity markets. This indicates that these
respondents have leveraged the opportunity of market volatility as it is always good to
make investments when the market dips.
4. Respondents have ranked mutual funds as the top investment avenue pre COVID.
This indicates that they were willing to take risks in normal scenario. But post
COVID, respondents have become risk averse and are shifting to safe havens.
5. Post COVID, respondents are willing to invest in Fixed Income Securities as they
carry the least risk and give decent returns as compared to the risk taken.

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6. Due to the high market volatility, respondents have decided to secure their money and
only invest in avenues which fetch guaranteed return.
7. But the interesting part is, in spite of being risk averse, respondents have given returns
the highest weightage followed by returns. This indicates the psychological aspect of
Indian investors wherein they want returns without incurring risk.
8. Mutual funds being a popular investment avenue post COVID, respondents want to
invest in blue chip companies. This indicates safer investment preferences and
investors benefit being a priority.
9. Growth plans have been given highest ranking in the scheme of mutual funds. Growth
fund invests in the emerging companies to attain maximum capital appreciation. This
can be in response to the Prime Minister’s announcement of ‘Atmanirbhar Bharat’
and seeing the success of multiple startups in India.

5. Recommendations

Investors are recommended to take a little risk in their portfolio so as to maximize

their own returns since the markets have shown recovery now. It is a good time to
invest now since the market will boost as soon as vaccine for COVID 19 will be
available. Therefore, taking calculated risks should fetch them good returns.

Portfolio managers/Fund managers are recommended to diversify the risks and

encourage risk averse investors to take on some risk in their portfolio. Also, newer
investment avenues can be explored which the investors are not aware of and can be
encouraged to include those in the portfolio.

Shifting back to the pre pandemic risk-taking abilities is recommended as the COVID
19 pandemic has almost come to an end and the chances of such a pandemic
happening again in the life of the investor are almost nil.
6. Conclusion

The impact of COVID 19 is huge and the economy is going to take time to completely
recover from it. The BFSI sector was still thriving throughout the pandemic so the losses
are not that much. The investments industry also did not witness a huge downfall but still
the impact was visible. Considering it is a global pandemic, the recovery will be tough
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but retail investors need to have faith and should not completely shift to the traditional,
safer investment avenues. The future of investment industry in India looks very
promising and the perception of retail investors is also positive.

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