Project Report

“The factors influencing individual investors’

Investment decisions in Bangladesh.”

A 2020 study based on the Investors of Dhaka Stock Exchange.

“A Paper on the factors influencing individual investors’
Investment decisions in Bangladesh.”

A 2020 study based on the Investors of Dhaka Stock Exchange.

Submitted To
Muhammad Ataur Rahman
Senior Lecturer
Department of Business Administration.

Submitted By
Avik Acharya
ID: 2016-1-10-159
Department of Business Administration.

Date of Submission: 29th April, 2020.

 Letter of Transmittal

29th April, 2020.

Muhammad Ataur Rahman

Senior Lecturer
Department of Business Administration
East West University

Subject: Submission of Project Report on “The factors influencing individual investors’

Investment decision in Bangladesh.”

Dear Sir,
As per the requirement of submitting a project report for the completion of BBA program, I
would like to submit my report titled “The factors influencing individual investors’ Investment
decision in Bangladesh”. I have given my highest effort and tried my best to follow the provided
instructions while preparing this report. Through this project work I have gained valuable
experience about the financial services and investment activities which will be very helpful in
my professional life.
Lastly, I want to convey my gratitude to you for your kind cooperation, supervision and advice in
conducting the study and preparing this report. I hope that this report will meet your
expectations. If any issues arise regarding this report, I’ll be glad to clear out the confusions.
Sincerely yours,

Avik Acharya

ID: 2016-1-10-159
Department of Business Administration
East West University
 Executive Summary

Those days are long gone when people only invested their money in post office and banks.
Today people have a wide range of choices for investments. Investment refers to the action of
putting money in any financial instrument or assets for a specific period with the expectation of
future returns. It is a way to grow a person’s existing wealth in terms of capital appreciation.
Individual investors are an integral part of a country’s financial activities.
Individual investor behavior is motivated by a variety of factors. The purpose of this research is
to identify the factors that affects while taking investment decision by individual investors. A
sample of 25 individual investors is considered for this study. Study outcomes are based on
analysis of primary data, which is collected through questionnaire. In this report data are
analyzed by using charts, percentage etc.
This report also aims toward providing an overview to the capital market of Bangladesh,
specifically the Dhaka stock exchange. Chapter 2 of this report focuses on the financial service
industry along with a briefing of Bangladeshi financial sector. Functions, regulatory and
organizational structure, goals, problems such aspects of Dhaka stock exchange are covered in
Chapter 3. Literatures which were reviewed during the project work are summarized in the
fourth chapter. Analysis of primary data is presented in Chapter 5 and findings from the study
are shown in the following section. Finally, with chapter 7 this report comes into conclusion.

This study found that various factors affect an individual investor while they take decisions about
investing their capital. Most of the respondents were found to prefer investing their money in
Mutual Funds and least preferred investment was fixed deposits. The study reveals that interest
rate of investment avenues, past experience, market performance of firm and profitability of
investments are some important factors for individual investors which influence them in taking
investment decision. Besides these, few irrational factors also affect the decision making process
such as mental accounting, self-image of investment avenues and rumors. Quantitative factors
such as return on investment, pay-back period, and risk are the most noteworthy determinants of
investment decisions.
The results of this study revealed that minimizing the risk of return, risk exposure and
diversification is the most important variable in choosing investment instruments and individual
sources of information gathered during these elections come with individual evaluations,
analysis, reports and economic programs.
Table of Contents
Chapter 1: Introduction...............................................................................................................................1
1.1 Origin of the study.............................................................................................................................2
1.2 Objective of the study........................................................................................................................2
1.3 Methodology.....................................................................................................................................2
1.4 Sources of Data..................................................................................................................................3
1.5 Limitations.........................................................................................................................................3
Chapter 2: The Financial Service Industry....................................................................................................4
2.1 Types of Financial services.................................................................................................................5
2.2 Functions of Financial Services..........................................................................................................6
2.3 Overview of Bangladesh’s Financial Sector........................................................................................7
Chapter 3: The Dhaka Stock Exchange.........................................................................................................9
3.1 Overview of Dhaka Stock Exchange...................................................................................................9
3.2 DSE as an Organization....................................................................................................................10
3.3 Goal of Dhaka Stock Exchange.........................................................................................................11
3.4 Functions of DSE..............................................................................................................................11
3.5 Regulatory Structure of DSE............................................................................................................12
3.6 Organizational Structure of DSE.......................................................................................................13
3.7 Problems of Dhaka Stock Exchange.................................................................................................14
Chapter 4: Literature Review.....................................................................................................................15
Chapter 5: Data Analysis............................................................................................................................18
5.1 Investment Decision Making Process of Individuals........................................................................18
5.2 Analysis & Interpretation of Primary data.......................................................................................20
Chapter 6: Findings of the study...............................................................................................................37
Chapter 7: Conclusion................................................................................................................................38
Bibliography...............................................................................................................................................39
Appendix...................................................................................................................................................41

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Chapter 1: Introduction

In academics term, an Individual who commits money to any source of investment with the
expectation of financial return is being recognized as an Investor. The prime concern of an
Individual Investor is usually to have more profit with minimum risk. With the growing pace of
Investment alternatives availability in the market the awareness and knowledge level of the
Investors have also increased many folds. The investment scenario has taken a shift which has
lead to the introduction of market linked securities with moderate component of risk and other
investment opportunities. This gave an opportunity to an individual investor to diverse his/her
portfolio to earn a higher rate of return with calculated amount of risk.
Sound Capital Market is an indispensable part of an Economy. Without sound and efficient
capital market, rapid economic development could be hampered as capital market provides long
term funds to entrepreneurs. Stock market is one of the attractive places for investment among
the investors of Bangladesh. There are two stock exchanges namely Dhaka stock exchange
(DSE) and Chittagong stock exchange (CSE). Both of these markets are primarily segmented
into two categories which are Primary market and Secondary market. However, the investment
situation was not that satisfactory in Bangladeshi capital market in the recent past. The investors
witnessed two severe stock market crashes in Bangladesh in the years 1996 and 2010. Since then
investors encountered much frustration due to gambling, syndication, insider trading, enactment
of many laws and their short term and sudden but adverse effect, fluctuating and volatile market
conditions, rumor, etc., in freely investing their money in markets. This has negatively impacted
the natural and stable growth of investment in this market. Capital Market of Bangladesh is still
highly speculative and lacks transparency due to vulnerable regulatory framework. In
Bangladesh, Financial sector was historically driven by banks and capital market had fewer rules
to play as people had mixed perception about the risk pattern in capital market that discouraged
them mostly to invest there. But in the mid of ninetieths of last century capital market started to
show vibrant behavior that make people interested about the stock exchanges. With rising trend
of popularity of stock market in general as a place where one can earn good returns in less time
has given a push to a common man to be a part of this market.

Individual Investor’s investment decisions need to undergo a thorough analysis of the situations
prevailing based on a number of factors. However regardless of the varied information available
that justifies rationality and irrationality, investors are intense to avoid uncertainties associated
with the ultimate decisions they engage in. This project work sought to fill the gap by
determining the factors that appear to influence the individual investment decisions, and included
not only the factors investigated by previous studies and derived from prevailing behavioral
finance theories, but also additional factors that have been found by analyzing investor’s
responses which affect their investment decision.

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1.1 Origin of the study

This report is prepared as a required part of BUS 498 (Project work) for the fulfillment of BBA
program in Faculty of Business Administration, East West University. During the project work, I
have studied about several aspects of investment in a capital market. I have gathered some
knowledge about the operations of Dhaka Stock Exchange and tried to find out the factors that
affect individual investor’s investment decisions by collecting information through a survey.
This report includes all of my learning regarding the capital market of Bangladesh as well as the
individual investor behavior. I have tried my best to properly apply my potentiality and
theoretical knowledge to make the report reliable and information worthy. My honest effort will
be regarded as successful if this report fulfils the objectives of the program.

1.2 Objective of the study

The main objective of this study is to identify and evaluate the factors that influence investors’
perception towards investment in stock market in Bangladesh. Therefore, this study will
contribute in knowing and understanding of investors’ behavior in our country which will help
policymaker and other portfolio managers to give proper appropriate suggestions on financial
planning or advising. This study indicates the factors affecting individuals’ investment decisions.
Following are the specific objectives of the study:

 To meet the requirement for the fulfillment of BBA program.

 To study various factors that affect the investment decision of individual investors while
they investing.
 To identify the most influencing factors for individual’s investment decision making.
 To study various qualitative as well as quantitative factors that influence investment
decision.

1.3 Methodology

Methodology is a systematic approach that a researcher uses to conduct a scientific study. It is

the overall synchronization of identified components and data resulting in a possible outcome.
Here, I have used Descriptive research design. Descriptive research designs help to provide
answers to the questions of who, what, when, where, and how associated with the research
problem; a descriptive study cannot conclusively ascertain answers to why. Descriptive research
is used to obtain information concerning the current status of the phenomena and to describe
"what exists" with respect to variables or conditions in a situation. This study shows the
phenomena of Investment and various factors affecting while investors are taking investment
decisions.

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1.4 Sources of Data

Data collection is an extremely challenging work which needs exhaustive planning, diligent
work, understanding, determination and to have the capacity to complete the assignment
effectively and efficiently. Normally we can gather data from two sources namely primary and
secondary. Primary data are gathered through perception or questionnaire review in a
characteristic setting that are obtained in an uncontrolled situation. Secondary data is the data
acquired from optional sources like magazines, books, documents, journals, reports, the web and
more.

To conduct this project work, I have used both primary and secondary sources of data. Primary
data is collected with the help of questionnaire and internet has been used as the secondary
source.

1.5 Limitations

There were several limitations in the study, which are as following:

i. Inexperience is one of the major limitations as I carried out such study for the first time.

ii. The study is limited to Dhaka Stock Exchange; data is collected from the investors who
have invested only in DSE.

iii. Investment decision depends on various factors. But, this study has been carried out by
considering a limited number of factors.

iv. The sample size in the study is restricted to 25 individual investors, which is not
sufficient to justify the actual scenario.
v. Dependency on secondary data.

vi. Inadequacy of quantitative analysis.

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Chapter 2: The Financial Service Industry

The financial services industry plays a vital intermediary role in the world economy as it moves
money from entities with excess funds to those with a need for funds. Companies in the financial
services industry are in the business of managing money.
Financial services refer to services provided by the finance industry. The finance industry
encompasses a broad range of organizations that deal with the management of money. Among
these organizations are banks, credit card companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored enterprises.
Commercial banking services are the foundation of the financial services group. The operations
of a commercial bank include the safekeeping of deposits, issuance of credit and debit cards, and
the lending of money.

An Investment bank normally only works with deal makers and high-net-worth clients, they
cannot work with the common public. These banks underwrite deals, secure access to capital
markets, offer wealth management and tax advice, also advice to companies for mergers and
acquisitions, and help for the buying and selling of stocks and bonds. Financial advisors and
discount brokerages also engage with this niche.
Hedge funds, mutual funds and investment partnerships invest people’s money in the
financial markets and collect management fees for giving services. These organizations require
guard services for trading and servicing their portfolios, as well as legal agreement and
marketing advice. There are also software vendors that provide to the investment fund
community by developing software applications for portfolio management, client reporting and
other support office services.
Private equity funds, venture capital providers and angel investors provide investment
capital to companies in exchange for ownership stakes or profit participation. Venture capital
was especially important to tech firms in the 1990s. Much of what goes on behind the scenes in
the making of big deals is attributed to this group.
Insurance is another important subsector of the financial services industry. In the United States,
an insurance agent differs from a broker. The previous is a representative of the insurance
carrier, while the latter represents the insured and shops around for insurance policies. This is
also the insurance underwriters, who evaluates the risk of insuring clients and also advises
investment bankers on loan risk. Finally, reinsurers are in the business of selling insurance to the
insurers themselves to help protect them from major losses.
The huge financial services sector also includes accountants and tax filing services, currency
exchange and wire transfer services, and credit card machine services and networks. It also
includes debt resolution services and global payment providers such as Visa and MasterCard, as
well as exchanges that facilitate stock, derivatives and commodity trades.

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2.1 Types of Financial services

Financial services are those services which helps people in management of their finance related
problems in a well-organized manner and therefore eliminating the fear of people regarding their
money. Given below are the various types of financial services which can be offering by from
financial institutions:
 Banking: It is a platform that allows an individual to deposit his or her money and get a
return in the form of interest. Also borrowers can get loan by paying interest to bank from
time to time.

 Insurance: By using this, one can get peace of mind as one can buy insurance policies
like life insurance, fire, flood, health and general insurance which ensures that person in
the event of any misfortune, can get his or her money back from insurance company.

 Stock Market: One can invest his or her funds into stock market also, where one gets
dividends and also capital appreciation, if one makes right investment decision than
return from equity markets, are much greater than that of fixed deposits of banks.

 Treasury or Debt instruments: Using such instrument one can invest his or her money
into government bonds and also in other debt instruments of private and public firms.

 Wealth Management: There are many firms, where people can just give their money
and then these companies invest money across different assets classes like commodity,
derivatives, money market, currency etc., in order to generate higher returns for their
clients.

 Mutual Funds: These funds follow asset class and generate returns accordingly, so the
debt funds will give return of debt and money market and an equity mutual fund would
give returns according to performance of stock market and so on.

 Tax consultants and audit firms: These organizations help people in find out their tax
liability, advising their clients on how to save tax and also in filing of their tax returns on
time.

 Venture Capital: It is a type of private equity capital usually provided by professional,

outside investors to new, high-growth-prospective companies in the interest of taking the
company to an IPO or trade sale of the business.

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2.2 Functions of Financial Services

Across time and space, the primary function of a financial system is to facilitate the
distribution and deployment of economic resources in an uncertain environment.
Reviewing financial systems through a functional perspective is significant in the
arrangement and development of financial markets and products, banking and equity
products and the insurance sector. Brodie and Merton (1995) determined the most
aggregated level of the single primary function of resource allocation to further distinguish
the six basic functions performed by the financial system. These are the following:
 Clearing & Settling Payments: In order to give way in the entry of goods, services
and assets, a financial system should provide ways of clearing and settling
payments. The set of institutional arrangements for accomplishing this task is
collectively known as the payments system. Banks and other depository financial
intermediaries fulfill this function thru wire transfers, checking accounts, and credit
cards.

 Pooling Resources & Subdividing Shares: The mechanism for the pooling of funds in
a financial system is done so that it could undertake large-scale indivisible
enterprise or for the subdividing of shares to form larger amounts of capital. In
modern economies, the minimum investment required to start or maintain a business
is often beyond the regular means of an individual or even several individuals. From
the perspective of firms raising capital, the financial system provides a variety of
mechanisms (such as security markets and financial intermediaries) through which
individual households can pool their money to form larger amounts of capital.

 Transferring Resources Across Time and Space: An interesting function of a

financial system is its ability to transfer resources across time and space. Serving
this function are intermediaries like banks involved in financing corporate
investments and housing, insurance companies and pension funds in financing
corporate investments and paying retirement annuities, and mutual funds.

 Managing Risks: A well-functioning financial system provides ways to handle

uncertainty and risk. It facilitates the efficient allocation of risk-bearing. Through
private sector and government intermediaries, the financial system provides risk-
pooling and risk-sharing opportunities for both households and business firms.

 Providing Information: Price information is important as it helps coordinate

decentralized decision-making in various sectors of the economy. This is easily
provided by a financial system. To manifest this function of financial markets,
individuals and businesses are permitted to trade financial assets. An additional

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 latent function of the capital market is to provide information useful for decision-
making. Interest rates and security prices are information used by households or
their agents in making their consumption-saving decisions and in choosing the
portfolio allocations of their wealth.

 Dealing with Incentive Problems: When one party to a financial transaction has
information that the other party does not, or when one party is an agent for another,
the financial system could find a way to deal with these incentive problems. A well-
functioning financial system minimizes the incentive problems that make financial
contracting difficult and costly.

2.3 Overview of Bangladesh’s Financial Sector

The financial sector of Bangladesh and the institutional financing activities have expanded over
the years in terms of number of formal institutions, financing instruments, and volume of assets.
Financial sector of Bangladesh is a bank-based system that also includes non-bank financial
institutions (NBFIs), capital market intermediaries, insurance companies and microfinance
institutions (MFIs). However, not all financial intuitions and market components are equally
regulated at all levels and there is also a large informal sector comprising of unregulated lenders,
like lending individuals, associations, clubs, and relatives, friends and neighbors.

The key portion of the financial sector of Bangladesh is regulated and supervised by the
Bangladesh Bank, the central bank of the country. Unlike in developed economies and
sophisticated markets, both long- and short-term financing needs of the country are met by the
banking industry. The central bank guides and controls the financing operations and activities of
Banks and Non-Bank Financial Institutions that are mainly associated with non-securities
financial instruments and markets. Operations and activities linked to securities instruments by
banks and NBFIs and capital market are regulated and controlled by the Bangladesh Securities
and Exchange Commission (BSEC). Microfinance operations and insurance segments are
regulated by two other regulatory agencies Microcredit Regulatory Authority (MRA) and
Insurance Development and Regulatory Authority (IDRA).

The banking and financial sector of Bangladesh has been facing a number of serious challenges
alongside operational expansions. Performances of certain section of banks have not been
praiseworthy in terms of different efficiency and soundness parameters. The sector is stressed
with the slander of some financial scams in a few state-owned commercial banks (SCBs) and
private commercial banks (PCBs) uncovered in recent years. On the other hand, bond market
remained underdeveloped, the capital market could not recover fully from the downfall it has
experienced and the potential of the insurance sector has not been fully explored.

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Bangladesh's banking system is now faced with a slow-motion banking crisis principally at the
government-run banks along with some private sector banks. The situation is not getting any
better due to very fast credit growth and state directed lending and loan restructuring. All this
raises the risk of a credit crunch. Six state-owned commercial banks account for almost a quarter
of all bank assets in the country. The government appoints their chief executives and board
members and often influences them to activities with disastrous effects. This result in a huge
amount of nonperforming loan (NPL) now estimated to be in excess of Tk 1.0 trillion (US$ 12
billion). Half of it is owed to six state-owned banks requiring continuous recapitalization of these
banks with tax-payers' money. The rest are owed to private and foreign-owned banks. The share
of NPL now stands at close to 11 per cent of the total loan portfolio.

On the other hand, Capital market of Bangladesh is also passing through a challenging time.
After posting a stellar return of 24% in 2017, broad index DSEX declined by 13.8% in 2018,
wiping out USD 4.3 bn of market capitalization. Average daily turnover amounted to USD 65.6
mn, down by 37.0% than that in 2017. In 2018, financial sector was adversely affected by rising
interest rate and growing NPL problems which dominated its stock market performance. Interest
rate hike was the key driver of market performance in last year. After years of gradual decline to
a comfortable level, interest rate shot up in early 2018. Increasingly negative risk premium
incentivized individuals and institutions to divert their funds from capital and money market to
NSCs. Liquidity was thus tightening for a while and reached a critical point.
However, an important event in the capital market took place during this distasteful time. A
strategic partnership was made between DSE and a Chinese consortium of Shanghai and
Shenzhen Stock exchanges. The consortium took 25% stake in DSE in exchange of USD 125
mn, valuing the exchange at USD 500 mn. The deal promised additional technical assistances
worth USD 37 mn. The strategic partnership is expected to make significant contribution in
improvement of local capital market.
Though financial sector plays a significant role in economic development by channeling long
term and short term funds from savers to investors, Bangladesh is still lagging behind as
compared to those of South Asian and South-east Asian countries in effectively managing this
sector. Banks play dominant roles in financing economic activities in Bangladesh. However,
banks are not in a position to finance a long term productive investment activities continuously
following higher level of non-performing loan and risk of maturity mismatch of funds. Given
this, Bangladesh needs to undertake measures to expand capital market for financing productive
investments and infrastructural projects. To this end, regulator of capital market BSEC may
undertake some pragmatic steps to ensure good corporate governance motivate good companies
for floating bonds, shares and continue legal facilitation with more attractive incentives,
especially for the foreign participants.

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Chapter 3: The Dhaka Stock Exchange

3.1 Overview of Dhaka Stock Exchange

A stock exchange is a place where shares are bought and sold. The efficiency and effectiveness
of the financial market and the progress of the overall economy largely depends on the role of
the stock exchange. The Dhaka Stock Exchange is the prime part of the capital market of the
country. Through its automated trading system, the exchange can offer facilities for smooth
transparent and highly efficient provisions for secondary market activities of shares, debentures
and wide varieties of other securities. This exchange is managed by a Board of Directors of 24
members, among them 12 are elected from DSE members, another 12 are selected from different
trade bodies and relevant organizations. The overall operations of the exchange are
professionally run by a team of qualified executives. The bourse at present offers trading
facilities of 750 securities worth US$ 47.34 billion which accounts for 19.26% of the GDP of the
country. The Dhaka Stock Exchange is the public meeting point for enterprises to raise capital in
Bangladesh.

The Dhaka Stock Exchange (DSE) was established as East Pakistan Stock Exchange Association
Limited on April 28, 1954. Formal trading of the bourse began in 1956. On June 23, 1962, it was
renamed as East Pakistan Stock Exchange Ltd. The name of the stock exchange was once again
changed to Dacca Stock Exchange Ltd on May 13, 1964. The stock exchange continued its
service uninterruptedly until 1971. The trading was suspended during the liberation war. Trading
on DSE resumed in 1976 with the change in economic policy of the government. Since then the
bourse did not look back and continued its journey contributing to the development activities of
the nation. On August 10, 1998 DSE introduced screen-based automated online trading through
Local Area Network (LAN) and Wide Area Network (WAN). On January 24, 2004, Central
Depository System (CDS) for electronic settlement of share trading made debut in the DSE. The
Dhaka Stock Exchange has become a full Depository Participant (DP) of CDBL to facilitate the
trading of its non- DP members. In its 50-year journey, the stock exchange has made significant
contribution to the economy of Bangladesh providing the unique venue to raise investment from
the public. The stock exchange is in a relentless process of modernization of its systems and
facilities in latest technologies available.

Incorporated as East Pakistan Stock Exchange Association Ltd. 28 April,1954

Started Formal Trading 1956
Renamed as East Pakistan Stock Exchange Ltd. 23 June, 1962
Renamed as Dacca Stock Exchange Ltd. 13 May, 1964

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Trading Suspended Under new Trade Policy 16 December, 1971
Trading Restarted in Bangladesh 16 August, 1976
Starting of Automated Trading 10 August, 1998
Start of CDS through CDBL 24 January,2004
Starting of Govt. Bond Market 01 January, 2005
DSE Chittagong Office Inaugurated 22 November, 2007
DSE Sylhet Office Inaugurated 30 March, 2008
Web Based Trading Software-MSA Plus Introduced 10 June, 2012
Signed an agreement with NASDAQ OMX and Flex Trade Systems
21st March, 2014
to provide the world leading trading system :
Inauguration of Upgraded Version of DSE Official website: 12th April, 2015
Launch of Mobile App "DSE INFO": 25th November, 2015
Inauguration of "New Book Building Software": 26th May, 2016
Achievement of ISO 9001:2008 30th October, 2016
DSE received money from Chinese consortium for selling
3rd September, 2018
its 25% Share
25% Share of DSE has been transferred to Chinese consortium,
4th September, 2018
DSE's Strategic Partner

3.2 DSE as an Organization

The Dhaka Stock Exchange Ltd. is registered as a Public Limited Company under the
Companies Act 1994. It is a self-regulatory organization and its activities are regulated by:

 Memorandum & Articles of Association,

 Own (set of) rules and regulations and bylaws,
 Companies Act 1994,
 Securities and Exchange Ordinance 1969,
 Securities and Exchange Rules 1987 and
 Other relevant laws of Bangladesh.
DSE has two tier of organizational setup- the Board of Directors and the Management
Committee. The members of the Board of Directors are responsible for policy making. The

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members of the Management Committee are responsible for conducting day to day operations
and internal management of DSE and also for implementing the policies as formulated by Board
of Directors.

3.3 Goal of Dhaka Stock Exchange

The main goal of the organization is to establish a stable and sound securities market based on
equitable principle of trade as well as to conduct the business giving due concerns to the public
interest. Besides this, Dhaka Stock Exchange shall endeavor to achieve the following objectives
within 2020:
 Achieve a sustainable average daily turnover of BDT 25 billion.
 Ensure steady domestic and offshore institutional investments of at least three fourth
of the total investments in the market.
 Attract more foreign investments to attain a steady level of at least 30% of the total
market capitalization.
 Double the total number of listed securities (other than Government Bills and Bonds).
 Increase depth and liquidity of bond market, including bringing in the Government
Securities under trading net.
 Increase breadth by listing new products, i.e. Index futures, ETF, Sukkuk and
derivatives.
 Ensure effective separation of regulatory function from commercial operation.
 Deploy State-of-Art technology through continuous but prudent and effective
investment.

3.4 Functions of DSE

The major functional areas of DSE are as follows:

 Listing of companies.
 Providing the market place for trading of listed securities.
 Providing the screen based online automated trading of listed securities.
 Settlement of trading (As per Settlement of Transaction Regulations).
 Administration and control of market.
 Market surveillance.
 Monitoring the activities of listed companies.
 Investors’ Grievance Cell (Disposal of complaint by-laws 1997)

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  Investors Protection Fund (As per Investors protection fund Regulations 1999)
 Gifting of shares / granting approval to the transaction / transfer of shares outside the
trading system of the exchange. (As per Listing Regulations 42)
 Publication of daily index and monthly review etc.

3.5 Regulatory Structure of DSE

Pirlament of Government of
People's Republic of Bangladesh

Ministry of Finance

Bangladesh Securities and Exchange Commision (BSEC)

Dhaka Stock Exchange Ltd. (DSE)

Corporate Members of DSE

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3.6 Organizational Structure of
DSE

Dhaka Stock Exchange

Board of Directors

CEO

Finance Division
ICT Division Administrative Division Operation Division

1. Monitoring,
1. General Acounts 1. System And Market 1. Membership Affairs Investigation &
Department Administration Department Complience
Department Department

2. Clearing Accounts 2. Board & Company

Departments 2. Network Development Affairs Department 2. Surveillance
Department Department

3. DSE FSDP 3. HRM, Admin &

Department 3. MIS & Development Training Affairs 3. Listing Affairs
Department Department Department

4. Clearing House
Department 4. Back Office 4. Logistic, 4. Market Operations
Development Maintenance & Department
Department Protocol Department
5. Internal Audit &
5. Hardware Support 5. R & D Department Complience
Department Department
6. Publications &
6. Application Support Media Monitoring 6. OTC Market
Department Department Department

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3.7 Problems of Dhaka Stock
Exchange

 Price Manipulation: It has been observed that the share values of some profitable
companies have been increased fictitiously. Some times that hampers the smooth
operation of Dhaka Stock Exchange.

 Delays in Settlement: Financing procedures and delivering of securities sometimes take

an unusual long time for which the money is blocked for nothing.

 Irregular Payment of Dividends: Some companies do not hold annual general

meeting and eventually declare dividends that do not reflect the real or actual financial
position of the company and ultimately shareholders become confused.

 Selection of Membership: Some members being the directors of listed companies of

Dhaka Stock Exchange look for their own interest using the internal information of share
market.

 Improper Financial Statement: Many member companies of Dhaka Stock Exchange

do not focus real position of the companies as the audit firms involves in corruption while
preparing financial statements. As a result the shareholders as well as investors do not get
the actual idea about financial position of the company.

 Lack of Skilled Manpower: Lack of skilled manpower in Dhaka Stock Exchange as

well as financial and nonfinancial institutions involved in the securities market is a
serious problem.

 Lack of Proper Policy: Absence of framework that provides incentives and protection
to investors exists in Dhaka Stock Exchange.

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Chapter 4: Literature Review

Investment decisions are considered one of the major aspects of finance. However, for an
investment decision to be made, the determinants play different influential roles. Various guiding
theories have been formulated with regard to investment decisions in the area of finance. It is
important to indicate some of the theories that are relevant to our study.

Sarbabidya & Saha (2018) conducted a study regarding factors affecting investment decisions.
This research was specifically focused on the question: “Is there any factor that affects decision
of investment in the stock market in Bangladesh?” Based on the collected data they concluded
that factors affecting investment decisions have a positive effect on Bangladesh stock market.
Among them risk tolerance, true accounting information, past and present stock performance,
earning per share, GDP and other Macroeconomic issues of the country, political stability are
noteworthy. This study found that if the investor pays his/her full and careful attention on the
identified factors and can comply with them proactively through intensive security analysis and
well planned portfolio management, they can make immense profit from their investment.

Md. Abu Hasan & Anita Zaman (2017) examined the volatility of the Bangladesh stock market
returns in response to the volatility of the economic variables. General index of Dhaka Stock
Exchange (DSE) and four macroeconomic variables (Call Money Rate, Crude Oil Price,
Exchange Rate and SENSEX of Bombay Stock Exchange) from January 2001 to December 2015
were used as the components of this research. It was found that predicting the Bangladesh stock
market returns volatility greatly depends on the changes that appear in the domestic and
international macroeconomic factors specifically, exchange rates, call money rate and the Indian
stock market index. Results of this research suggested that a rise in interest rate dampens the
stock market activities as people generally switch their capital from stock market to banks when
interest rate rises.

Abdullah, Parvez, Tooheen & Ahsan (2016) worked to measure the stock price volatility of the
selected pharmaceutical and chemicals companies listed on the Chittagong Stock Exchange. The
research question for the study was: What are the determinants of stock price volatility. The
model used in this study investigates the relationship between Dividend Yield, Earning per
Share, Price earnings Ratio, Return on Equity and Mean Share Price. It was observed that EPS
shows a positive correlation coefficient and a moderate correlation with the dependent variable
Average Share Price. Dividend Yield was found to have an insignificant impact on Average
Share Price. P/E Ratio was strongly positively correlated with Average Share Price. ROE was
observed to have a negative correlation with Average Share Price.

Qaisi, Tahtamouni, Mustafa (2016) investigated the effect of some factors on market stock
price. Return on Asset (ROA), Return on Equity (ROE), Debt Ratio, the Age of the Company,

15 | P a g e
and the Size of the Company were used as the measure to conduct the experiment and twenty
insurance companies listed in Amman stock exchange were used as a sample. By analyzing the
collected data using simple and multiple linear regression it was found that there was significant
effect of ROA, Debt Ratio Company’s age & Size over the stock price in insurance
companies listed on ASE. No effect between ROE and market stock price were found in the
study.

Md. Saddam Hossain Khan & Afsana Tajnin (2018) tried to identify the intensity of the most
influencing factors that should be considered in order to invest in the optimal projects. They took
16 broad category factors into account which represented more than 40 specific factors from
different brokerage houses of Bangladesh. The study concluded by showing the result that
Available Money & Investment, Market trend & Risk, System & Diversification, Rate of Return,
Intensity of Risk Taking, Investment period and Tax, these 7 factors out of the 16 factors which
play influential role at the time of deciding an investment by a potential investor.

Zobaida Khanam (2017) examines the association between certain demographic factors and
decisions of the investors particularly when different companies announce dividends on their
stocks. Here the demographic factors such as age, education level, occupation, experience and
income level of investors are evaluated individually and then the decisions of the general
investors of buying, selling and holding stock during dividend declaration has been identified
through a structured questionnaire. It was found that if all the investors were given the same set
of data then also the differences in data perception would prevail. The finding showed that all the
selected demographic factors age, education level, occupation, trading experience and income
level of investors have a significant relationship with another categorical variable investment
decisions to buy, sell and hold stocks during dividend declaration. That means a different number
of investors with different demographic backgrounds make the response to buy, sell and hold
shares in a different percentage during dividend announcement by the listed companies in the
stock market.

Geetha and Vimala (2014) investigated the effect of demographic variables on the investment
decisions by performing a sample survey method in Chennai, India. According to analysis
results, from the investors‟ point of view, changes in demographic factors such as age, income,
education, and occupation had an influence in the investment avenue preference.

Obamuyi (2013) tried to reveal the socio-economic factors influencing investment decisions of
investors in the Nigerian capital market. By employing independent t-test, analysis of variance
and post-hoc tests, past performance of the company’s stock, expected stock split/capital
increases/ bonus, dividend policy, expected corporate earnings and get-rich quick were found to
be the most influential factors on 43 investment decisions of investors in Nigeria. When taking
investment decisions, non-economic factors such as religions, rumors, loyalty to the company’s

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products/services, and opinions of members of the family were found to be insignificant among
investors.

Brahmabhatta et.al. (2012) tried to explain the investors‟ behavior on investment avenues in
Mumbai Fenil. He has stated that investor’s perception will provide a way to accurately measure
how the investors think about the products and services provided by the company. The main
objective of the study is to find out the need of the current and future investors and to study on
investor behavior. 100 investors were taken for the study. Most are making conservative
decisions that reflect a survival mode in the business operation. During these difficult times,
understanding what investors on an ongoing basis is critical for survival. Therefore, the study is
identified that people like to invest in stock market as compared to any other markets, even if
they face huge losses.

A limited number of studies were found on individual personal traits and risk taking capacity
which actually affects the decision making process of any investment. Behavioral pattern
changes depending on customer preferences of how they will react to any fluctuation on Capital
market scenarios. Investment perspective changes when the market rate changes, share prices fall
down and investors feel the uncertain risk of losing their money. Behavioral changes affect
decision of financial planning and investment pattern.

Investment decisions need to undergo thorough analysis of the situations prevailing based on a
number of factors. However, regardless of the varied information available that justifies
rationality and irrationality, investors are intense to avoid uncertainties associated with the
ultimate decisions they engage in. This study sought to fill the gap by determining the factors
that appear to influence the individual investment decisions, and included not only the factors
investigated by previous studies and derived from prevailing behavioral finance theories, but also
introduced additional factors that have been found which affect the investment decision of
individual investor.

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Chapter 5: Data Analysis

5.1 Investment Decision Making Process of Individuals

An investment is an asset or item acquired with the goal of generating more income. In an
economic sense, an investment is the purchase of goods that are not consumed today but are used
in the future for create the wealth. In finance, an investment is a monetary asset, which is
purchased with the idea that the asset will provide income in the future or will be later on sold at
a higher price for a profit.
The term "investment" can refer to any mechanism, which is used for generating future income.
In the financial sense, this includes the purchase of bonds, stocks, gold or real estate property.

It is most important that every person can take appropriate decision to invest their money.
Economic theory says human beings are rational agents and their investment ideas are goal
oriented, evaluative and free from emotions. However, in reality, the investment decision of
individual investors can often be irrational.
Before making any investment decision, a person has to consider the following important things:

1. Draw a personal financial roadmap: Before taking any investing decision, a person has
to sit down and take an honest look at his/her entire financial situation, especially when a
person has never made a financial plan before. The first step for successful investment is
figuring out the goals and risk tolerance with the help of a financial professional or by
your own. There is no guarantee that you will make money from your investments, but if
you go through intellectual plan and get the detailed information about savings and
investment, then you should be able to gain financial security over the years and also get
the benefits of managing your money.

2. Evaluate your comfort zone to take the risk: All investments involve some degree of
risk. If you aim to purchase securities, such as stocks, bonds, or mutual funds then it is
important to understand and recognize the risks before investing, because it may cause
losing some or all of your money. The reward for taking the risk also gives greater
investment return. If you have a financial goal with a long time period, then you will be
able to make more money by carefully investing in asset categories with greater risk, like
stocks or bonds, rather than constraining your investments to assets with less risk, like
cash equivalents. On the other hand, investing only in cash investments is may be
appropriate for short-term financial goals.

3. Choosing an appropriate mix of investments: A portfolio including asset categories

with investment returns which move up and down under different market conditions can

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 protect an investor against major losses. Traditionally, the returns of the three major asset
categories – stocks, bonds, and cash do not go up and down at the same time. By
investing in more than one asset categories, investors can reduce the risk of losing
money. This will also help the portfolio's overall investment returns to experience a
smoother ride. If one asset category's investment return falls then you will be in a
position to defend your losses by the returns from other asset category. In addition, asset
allocation is important because it has major impact on the financial goal. If you don't
include enough risk in your portfolio, then your investments may not generate large
enough return to meet predetermined investment objectives. For example, if you are
saving for a long-term goal, such as retirement or college, most financial experts agree
that you will likely need to include at least some stock or stock mutual funds in your
portfolio.

4. Create and maintain an emergency fund: Most smart investors put their money in a
savings product to meet an emergency, like sudden unemployment. Some make sure that
they will invest up to the amount equivalent to their six month’s income in savings so that
they can survive through any sudden emergency.

5. Rebalancing the portfolio occasionally: Rebalancing means bringing the investment

portfolio back to the original asset allocation mix. It helps to ensure that your portfolio
does not overemphasize on one or more asset categories, and lead back to the portfolio of
a comfortable level of risk.

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5.2 Analysis & Interpretation of Primary data

Question 1: Gender of the Investor.

Particulars No. of Respondents Percentage

Male 16 64%
Female 9 36%

Gender

Female 36%

Male
64%

Prior research on gender and risk aversion shows mixed results. There are many sources that
show females to be more risk averse, but since the 1980s there have been many studies done that
show females take similar risks as males.
However, among the 25 participants of my survey 36% are female and 64% are male. It has been
observed in above statement that the preference of male is more in investing in more risky
opportunities when compared to female, whereas female prefer to invest in risk free or less risky
investment.

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Question 2: Age of the Investor.
Particulars No. of Respondents Percentage
20 – 30 3 12%
30 – 40 11 44%
40 – 50 7 28%
50 – 60 4 16%
Above 60 0 0%

Age

16% 12%

20 – 30
30 – 40
40 – 50
28%
44% 50 – 60

Just as a person evolves throughout his/her career and into retirement, their investment decisions
should as well. If someone is taking the same risky investment approach at age 50 as they did at
25, it will not be optimal for ideal investments. The younger you are, the riskier your investment
portfolio can be. Because, the younger a person is, the more time they have to recover and
recoup any losses from things like a sudden market downturn. Someone who's a few years away
from retirement, however, won’t have the necessary time it often takes to recover from a plunge
in the markets. Instead, if their portfolio relied too heavily on stocks, their entire retirement
strategy could be jeopardized. They may never recoup their losses and could easily drain their
other resources while trying to accommodate for this loss of income. How a person invests
throughout his/her career depend on a variety of factors. It’s always important to take age and
proximity to retirement into account while taking investment decisions.
If we observe our sample response, it can be seen that out of 25 respondents, 12% are between
age group of 20-30 years, 44% are between age group of 30-40 years, 28% are between the age
group of 40-50 years, 16% are between the age group of 50-60 years and no response was found
from above 60 years. This represents that middle aged persons are likely to go more with
investments rather than spending their money anywhere.

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Question 3: Educational Qualification

Particulars No. of Respondents Percentage

HSC 1 4%
Diploma 3 12%
Under Graduate 11 44%
Post Graduate 6 24%
Doctorate 4 16%
Others 0 0%

Educational Qualification
4%

16%
12%
HSC
Diploma
Under Graduate Post Graduate Doctorate

24%

44%

Education is a key factor in explaining investors’ stock market behavior. Prior studies found that
individuals with less than a college degree are less likely to hold risky assets, compared to
individuals with at least a college degree. The higher an individual’s education level, the greater
the likelihood of the individual having higher risk tolerance. Education appears to encourage risk
taking, because increased level of attained academic training allows individuals to assess risk and
benefits more carefully than in the case of someone with less education.

The graph shows that majority of the respondents are under-graduates and post graduates, which
are 44% and 24% respectively. 16% of the sample is holding Doctorate degrees. 12%
respondents have diploma and 4% of the participants only holds a higher secondary certificate.

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Question 4: Occupation

Particulars No. of Respondents Percentage

Student 2 8%
Business 11 44%
Employee 9 36%
Retired 3 12%
Others 0 0%

Occupation

12% 8%

Student
Business Employee Retired

36% 44%

Individual’s Profession is one of the factors which directly influence their investment decisions
which later affect their investment behavior. From the investment point of view, each profession
provides some advantage and disadvantage to the investors. Some profession satisfies all the
needs of the individuals and some others do not. Prior researches depict that engineers and
lawyers are high risk takers, moderate risk takers are investment consultants and management
professional and business, bank and teaching/academic professionals are low risk takers.
Investors who are professionally related to the investment sector prefer medium term pattern of
investments, others prefer having long term and short term pattern of investments.
According to my collected data, major portion of the respondents belong to the group of business
person which is 44% of the sample. The lowest which is only 8% are students. 36% of the
participants are employed by different organizations and 12% of the respondent is retired.

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Question 5: Annual Income of the Investor.

Particulars No. of Respondents Percentage

Up to Tk. 2 lakh 3 12%
2 to 4 lakh 6 24%
4 to 7 lakh 10 40%
7 to 10 lakh 4 16%
Above 10 lakh 2 8%

Annual Income

8% 12%
Up to Tk. 2 lakh
16% 2 to 4 lakh
4 to 7 lakh
24% 7 to 10 lakh
Above 10 lakh

40%

Among the demographic variables, the income earned by the investors play an important role as
it determines the proportion of income which goes into savings and which could be invested. It
also plays a prominent role in determining investors risk appetite. Investors with higher income
have higher risk bearing capacity. The risk aversion reduces as individual’s income increases
above the poverty level, and it significantly reduces for the rich. The higher risk appetite of
higher income individuals could be explained by the higher amount of funds available for
investment and the better tolerance for the consequences of a bad decision as the income levels
are above the subsistence level.
The graph above is representing the annual income level of the respondents. 40% of the
participants belong to the group who earn up to 4 to 7 lakh taka annually. 24% have an annual
income in between 2 to 4 lakh taka. 12% respondents have maximum 2 lakh taka as their annual
income. 16% of the sample obtains an annual income up to 7 to 10 lakh taka and only 8%
responded to earn above 10 lakh taka annually.

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Question 6: How much do you save from your Annual Income?

Particulars No. of Respondents Percentage

Less than 15% 4 16%
15% to 25% 11 44%
25% to 40% 7 28%
More than 40% 3 12%

Savings from Monthly Income

12% 16%

Less than 15%

15% to 25%
25% to 40%
28% More than 40%

44%

There's no question more fundamental to personal finance than how much money we should
save. How much one should save varies considerably based on circumstances. No matter how
much money a person earns, the amount they invest should be based on their goals. However,
Investment goals should also be based on how much one can afford to invest. Most financial
planners advise to save between 10% and 15% of the monthly income. According to the popular
50-30-20 rule, you should reserve 50 percent of your budget for essentials like rent and food, 30
percent for discretionary spending, and at least 20 percent for savings.

The graphical representation depicts that 44% of the total respondents save 15% to 25% from
their monthly income while only 12% saves more than 40%. It also shows that 28% of the
sample manages to save 25% to 40% of their monthly earnings. Only 16% of the participants
save less than 15% of what they earn in a month.

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Question 7: For how long you have been involved in investment activities?

Particulars No. of Respondents Percentage

Less than or equal to 5 years 8 32%
5 to 10 years 12 48%
10 to 15 years 3 12%
15 to 20 years 2 8%
More than 20 years 0 0%

Investment Experiene

8% Less than or equal to 5

years
12% 32% 5 to 10 years

10 to 15 years

15 to 20 years
48%

Experience is one of the personal factors that influence investment decisions. Investors who have
a lot of experience usually find it easier to choose from alternatives of investment opportunities.
Knowledge and experience have close relations. Prior studies found that most of financial errors
by an individual are caused by low financial knowledge and experience level. So that it can lead
to inappropriate financial decision which results in failure. Lack of experiences sometimes leads
to lack of innovation in decision making. An experienced investor will be addicted to make more
investment, as well as will select type of investment with higher risks. They also have a tendency
to prefer risked portfolio since he has more experiences on how to solve it correctly.

The graph exhibits that majority of the respondents which is 48% have 5 to 10 years of
experience in investment activities. 32% have less than 5 years experience. People who have 10
to 15 years of experience account for 12% of the sample size. Only 8% of the respondents have
encountered investment activities for the maximum period of time which is 15 to 20 years.

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Question 8: Which type of investments do you prefer?

Particulars No. of Respondents Percentage

Fixed Deposits 5 20%
Saving Bank A/C 8 32%
Insurance Plans 11 44%
Post Office Savings 15 60%
Mutual Funds 21 84%
Real Estate 12 48%
Bond / Debt 6 24%
Shares / Equity 18 78%
Gold 6 24%
Others 4 16%

Preffered types of Investment

Others Gold
Shares / Equity Bond / Debt Real Estate Mutual Funds
Post Office Savings Insurance Plans Saving Bank A/C
Fixed Deposits

0% 20% 40% 60% 80% 100%

From the survey it has been found that 84% out of a sample of 25 investors prefer mutual fund as
their investments above any other instruments. 78% responded share/equity as their preference.
Post office savings has been identified as the third favorite type of investment with 60%
response. 48% respondents showed their interest to invest their money in real estate. Insurance
plans got 44% response. 32% of the individual investors have chosen bank’s savings accounts to
put their money. Only 20% consider fixed deposits as their investment instrument. Bond/debt
instruments along with gold had 24% response.
By looking at these numbers it is to be said that most of the investors relies on mutual fund to
invest their money and diversification may be the main reason behind this huge response for
mutual fund.

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Question 9: What is the objective of your investment?

Particulars No. of Respondents Percentage

Safety 11 44%
Growth in Income 19 76%
Increased Savings 7 28%
Family welfare 16 64%
Liquidity 5 20%
Tax Benefits 12 48%
Others 0 0%

Objetive of Investment
Others

Tax Benefits Liquidity Family welfare

Increased Savings Growth in Income
Safety

0%10%20%30%40%50%60%70%80%

From the observation of collected data it is clear that most of the respondents are investing their
money for growing their income, 76% responded on this objective. 64% of the sample responded
their investment objective to be the welfare of their families and 48% responded for tax benefits.
Respondents who earn more, they are investing for the purpose of increasing their savings, there
was 28% response for this objective. 44% of the respondents chose safety to be the goal of their
investments. Only 20% of the sample looks for liquidity as their investment objective while
investing.

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Question 10: Are you satisfied with your current investment decisions?

Particulars No. of Respondents Percentage

Yes 17 68%
No 2 8%
Neutral 6 24%

Satisfaction with current Investment decisions

24%

Yes
No Neutral
8%

68%

The above graph represents the investor’s satisfaction regarding their current investment
decisions. It can be seen that 68% of the respondents are satisfied with their current investment
decision and 24% have said that they don’t know if they are satisfied or not from their current
investment decision due to various external uncertainties. Only 8% responded negatively as they
were not happy about their investments and they wish to make changes in their investment
portfolio.

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Question 11: From which Sources do you get Investment Information?

Particulars No. of Respondents Percentage

Newspaper 4 16%
Television 3 12%
Friends & Family 8 32%
Brokers 25 100%
Others 5 20%

Source of Investment Information

Others

Brokers Friends & Family

Television

Newspaper

0% 20% 40% 60% 80% 100% 120%

Investment information seems to be everywhere: in print, radio, television, and Internet.

Investment decisions involve asset allocation and security selection. To make those decisions,
investors need information that will help them to form an idea of the economy, industry, and
company that will affect their decisions. The three main kinds of information that investors use
are economic indicators, market indexes, and company performance.
In our study, all of the investors agreed that they get their investment information from their
brokers. 32% of the respondents said they also get information that helps them to take investment
decision from their friends and family. 16% and 12% participant responded for Newspaper and
television respectively. 20% of the sample relies on other sources of investment information.

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Question 12: What type of investor you are?

Particulars No. of Respondents Percentage

Aggressive investor willing to
3 12%
take more risk.
Moderately aggressive investor
9 36%
willing to take some risk.
Moderately conservative
7 28%
investor willing to take less risk.
Conservative investor willing to
6 24%
take only minimum risk.

Nature of the Investor

12%
24%
Risk takers
Moderate risk takers Less risk takers
Risk averse

36%

28%

Among the 25 individual investors who participated on the survey, 36% of them were found to
be moderately aggressive investors who are willing to take some risk. 28% are moderately
conservative investors, who are willing to take less risk and 24% are purely conservative
investors, who are willing to take only the minimum amount of risk. There are very less number
of respondents who wants to take more risk, only 12% of the sample have such risk taking
mentality. Most of the respondents are willing to take moderate risk due to moderate income
with consideration of time and return aspect.

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Question 13: How Important is each of the following factors to your investment?

Very
Factors Important Slightly Important Not Important
Important
Information about investment avenues 17 8 0 0
Level of Income 9 12 4 0
Interest Rates 12 13 0 0
Short term capital gain 5 4 10 6
Long term capital appreciation 17 6 2 0
Dividend policy 4 11 7 3
Minimizing risk 6 16 3 0
Family/Relative’s opinion 0 7 9 9
Brokers/Financial advisors 20 4 1 0
Reviews of Newspapers/Magazines 3 14 6 2
Financial statements/ Annual reports 8 12 3 2
Past experience 6 14 4 1
Reputation of firm 12 10 3 0
Market performance of firm 7 18 0 0
Stock price per share 21 4 0 0
Company history 8 13 2 2
Profitability of investment 17 6 2 0

If we analyze the feedback of individual investors who participated on the survey we will be able
to categories their responses regarding the importance of several factors which may affect
investment decisions. In this question, we asked the respondents to classify how important a
specific factor is in their investment decision making process.

Here, profitability of investment, stock price per share, financial advisor’s opinion, long term
capital appreciation and information about investment avenues these five factors had been
identified as very important factors in case of investment decision making. Company history,
market performance of firm, reputation of firm, past experience, financial statements, review of
newspapers, minimizing risks, dividend policy, interest rates and level of income these ten
factors were considered as important by the individual investors. As slightly important factors 10
investors have picked short term capital gain, while the same factor was considered as not
important to other 6 respondents. Another factor which is family/relative’s opinion was reckoned
as not important by 9 people as opposed to slightly important by another 9 participants.

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 Importance of factors in Investment Decision
Very Important Important Slightly Important Not Important

Profitability of investment
17 6 20
Company history Stock price per share Market performance
8 of firm 13 2 2
Reputation of firm Past experience
21 4 0
Financial statements/Annual reports Reviews of Newspapers / Magazines Brokers/Financial advisors 0
7 18
Family/Relative’s opinion
12 10 3 0
Minimizing risk Dividend policy
6 14 4 1
Long term capital appreciation Short term capital gain
8 Interest Rates 12 3 2
3 14
Level of Income 6 2
Information about investment avenues
20 4 10
0 7 9 9
6 16 3 0
4 11 7 3
17 6 2 0
5 4 10 6
12 13 0
9 12 4 0
17 8 0

On the basis of the response of individuals about the importance of different factors, it can be
said that all of the listed factors are somehow influential to the investment decision making
process and almost all of the factors have the ability to affect individual investors’ investment
decision.

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Question 14: Give your opinion regarding the influence of quantitative factors on your
investment decision.

Factors Strongly Somewhat Strongly

Agree Disagree
Agree Agree Disagree
Return on Investment 16 7 2 0 0
Risk 10 12 3 0 0
Pay – Back Period 5 18 2 0 0
Dividend payout ratio 3 13 5 4 0
Stock price per share 18 6 1 0 0

Influence of Quantitative Factors

Strongly Agree Agree Somewhat Agree Disagree Strongly Disagree

0 0 0 0 01
2 2
3 4 6
7
5
12
18

13 18
16
10
5
3

Return on Risk Pay – Back Period Dividend payoutStock price per

Investment ratioshare

By looking at the graph it is comprehensible that most of the investors strongly agree that Return
on investment and Stock price per share these two are the most important quantitative factors
that they consider before making any investments. Most of them also agreed that Risk, Payback
period and Dividend payout ratio these factors are also important to their decision making
process.
There were only 4 respondents who did disagree that dividend payout ratio is an important
quantitative factor. Without this, all of the listed quantitative factors are believed to play
noteworthy roles in individual investors’ investment decisions.

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Question 15: Give your opinion regarding the influence of qualitative factors on your
investment decision.

Factors Strongly Somewhat Strongly

Agree Disagree
Agree Agree Disagree
Image of firm 8 10 5 2 0
Size of firm 6 15 0 3 1
Service quality 18 4 3 0 0
Firm’s Operations 9 12 4 0 0

Influence of Qualitative factors

Strongly Agree Agree Somewhat Agree Disagree Strongly Disagree

02 1 0 0
3 3
5 4
0 4

12
10 15

18

8 9
6

Image of firm Size of firm Service quality Firm’s Operations

Among a wide range of qualitative factors Image of firm, Size of firm and firm’s operations these had
been identified as very influential in taking investment decisions. Respectively 10, 15 and 12
respondents have agreed on the influence of Image of firm, Size of firm and Operations of firm on the
decision making to make any investment to a specific company. On the other hand, 18 participants
strongly agreed that service quality of the firm is one of the important qualitative factors that may
influence their decisions about making any investment to any specific firm.

Based on these opinions of the respondents, it is to be said that all of the listed qualitative factors are
influential and there is no scope to raise any question about the importance of these four qualitative
factors in investment decision making of individuals.

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 Question 16: Identify if you are influenced or not by the following factors while making
investments in the stock market.
Not Slightly Moderately Highly
Factors
Influenced Influenced Influenced Influenced
Cash / Stock Dividend 14 6 2 3
EPS, P/E Ratio 0 0 0 25
Paid-up / Authorized Capital 2 8 13 2
Outstanding Shares 15 7 3 0
Face Value 25 0 0 0
Net Income 0 4 12 9
Retained Earnings 0 8 11 6
Growth of the Firm 0 7 16 2
Return on Investments 0 0 3 22
Analyst’s Reports 0 14 6 5
Rumors 8 10 7 0
Agent’s advice 0 2 7 16
Record Date 0 3 3 19
Goodwill 4 16 3 2
Company News 0 0 0 25

Factor influencing stock market investments

Not Influenced Slightly Influenced Moderately Influenced Highly Influenced

ny News 0 25
Goodwill Record
4 Date Agent’s advice 16 3 2
Analyst’s Reports Return on Investments Growth of the Firm Retained Earnings
Net Income Face03 3
Value Outstanding Shares 19
02
Paid-up 7
/ Authorized Capital 16
Ratio 0 Cash / Stock Dividend 8 10 7 0
0 14 6 5
03 22
0 7 16 2
0 8 11 6
04 12 9
25 0
15 7 3 0
2 8 13 2
25
14 6 2 3

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Chapter 6: Findings of the study

From the review of the prior researches and analysis of survey data, it was found that there are
numerous determinants and factors that influence the individual investors’ behavior in
investment activities. Among these, some factors influence majorly while others have slight role
in influencing the behavior and decisions of an individual investor. These factors can be grouped
into demographic, economic, social, and psychological in nature. The most common
determinants that have a significant impact on the investors’ behavior are financial literacy,
annual income, investment objective, risk factors, previous experience, interest rates, return on
investment, payback period and many more. Besides these the following things were found from
the study:
i. People who belong to the age group 30 to 40 years are more likely to go with investment
activities rather than spending their money anywhere else.
ii. Most of the respondents are able to save around 15% to 25% from their monthly income.
iii. A hefty number of individuals prefer to invest their money in mutual funds as this
instrument helps them to diversify their money in several investment avenues.
iv. Respondents prefer short and medium term investments due to the uncertainty of market
forces.
v. People who have the ability to save more, they are mainly investing for the purpose of
safety and future needs.
vi. There are very less number of respondents who want to take more risk. Most of them
prefer to take moderate risk due to moderate income with consideration of time and
return aspect.
vii. Investment’s profitability, interest rates, market performance of firm, services of financial
advisors and brokers, knowledge about investment options and reviews from newspapers
and magazines have been given major importance by the respondents while they take
investment decisions.

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Chapter 7: Conclusion

Behavioral finance - a relatively new field that came into relevance in the 1980s, studies the
effect of psychology on financial decision-making. It studies how investors interpret information
and act on it to make decisions under uncertainty. This science does not try to label traditional
financial theories as obsolete, but seeks to supplement the theories by relaxing on its assumptions
on rationality and taking into consideration the premise that human behavior can be understood
better if the effects of cognitive and psychological biases could be studied in context where
decisions are made.
Individual investors are individuals who operate in the financial markets on their own. Individual
investors need to be well analyzed and assessed about the factors by which they are being
influenced when making any investment decisions. The movements of individual investors are
sometimes caused by fluctuations in financial markets that may or may not be meaningful. In the
behavioral finance perspective, investors are not only influenced by economic and financial
indicators while making their decisions. They also act on the basis of past experiences and by
some psychological factors according to the state of perception and shape. Moreover, Individual
investors' personal and social situations, investment preferences and level of knowledge and
general factors (economic stability, income levels & experience) affect investment decisions.
The results of this study revealed that minimizing the risk of return, risk exposure and
diversification is the most important variable in choosing investment instruments and individual
sources of information gathered during these elections come with individual evaluations,
analysis, reports and economic programs. It has been determined that the rate of return and the
level of risk of these investment avenues are the most important factors. Further research can be
conducted by expanding the number of surveys and increasing the number of cities.

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 Bibliography

1. Ruhani, Aminul, Ahmad & Quddus, (2018), Effects of Financial Market Variables on
Stock Prices; Journal of Modern Accounting and Auditing, Vol. 14, No. 11, 597-610 doi:
10.17265/1548 6583/2018.11.002.
2. Sarbabidya & Saha, (2018), Factors Affecting Investment Decisions - A Study on
Bangladesh Stock Market, Journal of Accounting, Finance and Economics, Vol. 8. No. 2.
Pp. 1–19.
3. Qaisi, Tahtamouni & Mustafa, (2016), Factors Affecting the Market Stock Price - The
Case of the Insurance Companies Listed in Amman Stock Exchange; International
Journal of Business and Social Science Vol. 7, No. 10.
4. Saddam Hossain & Afsana Tajnin, (2018), Factors that affect potential investors in case
of choosing the optimal investment from the stream of investment alternatives;
International Journal of Advanced Multidisciplinary Scientific Research, ISSN:2581-
4281 Volume 1, Issue 10.
5. Shohidul, Murshedul & Zohora, (2017), Factors affecting share price of cement industry,
European Journal of Business, Economics and Accountancy, Vol. 5, No. 6, ISSN 2056-
6018.
6. Rahnuma Akhter & Sultan Ahmed, (2013), Behavioral Aspects of Individual Investors
for Investment in Bangladesh Stock Market; International Journal of Ethics in Social
Sciences, Vol. 1 No. 1, ISSN (P): 2308-5096.
7. Shah Md. Ahsan Habib, (2019), Financial Sector in Bangladesh - Recent Trends and
Benchmarking for the Government, CPD Working Paper 128
8. Sevilay & Hasim, (2018), The Factors Affecting Individual Investors’ Behaviors;
International Journal of Organizational Leadership, 7 284-299.
9. Dr. Mohammad Shafi, (2014), Determinants Influencing Individual Investor Behavior in
Stock Market; Arabian Journal of Business and Management Review (Nigerian Chapter)
Vol. 2, No. 1.
10. Bangladesh bank; https://www.bb.org.bd/
11. Dhaka Stock Exchange; https://www.dsebd.org/
12. https://www.investopedia.com/terms/b/behavioralfinance.asp

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13. https://www.think-asia.org/bitstream/handle/11540/192/financial
sectorban.pdf?sequence=1
14. https://www.thedailystar.net/business/bangladesh-banking-sector-economy-steeped-
default-loans-poses-1857856
15. https://en.wikipedia.org/

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 Appendix

Questionnaire

I, Avik Acharya, a student of East West University, am studying “The Factors Affecting
Investment Decision of Individual Investors” as a partial requirement for the completion of
B.B.A. program. As a part of this project work I am looking forward to collect some primary
data through this questioner, so please cooperate by answering the following questions. This
study is intended for academic purposes only and not for any commercial purposes.

Question 1: Gender

a) Male b) Female

Question 2: Age

a) 20-30 b) 30-40 c) 40-50 d) 50-60 e) Above 60

Question 3: Educational Qualification

a) HSC b) Diploma c) Under Graduate d) Post Graduate e) Doctorate

Question 4: Occupation

a) Employee b) Business c) Student d) Retired e) Other

Question 5: How much do you earn annually?

a) Up to Tk. 2 lakh b) 2 to 4 lakh c) 4 to 7 lakh

d) 7 to 10 lakh e) Above 10 lakh

Question 6: How much do you save from your Annual Income?

a) Less than 15% b) 15% to 25% c) 25% to 40% d) Above 40%

Question 7: For how long you have been involved in investment activities?

a) Less than or equal to 5 years b) 5 to 10 years c) 10 to 15 years

d) 15 to 20 years e) More than 20 years

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Question 8: Which type of investments do you prefer? (✔your preferred answers)

Fixed Deposits Real Estate

Saving Bank A/C Bond / Debt
Insurance Plans Shares / Equity
Post Office Savings Gold
Mutual Funds Others

Question 9: What is the objective of your investment? (✔your preferred answers)

Safety
Growth in Income
Increased Savings
Family welfare
Liquidity
Tax Benefits
Others

Question 10: Are you satisfied with your current investment decisions?
a) Yes b) No c) Neutral

Question 11: From which Sources do you get Investment Information? (✔your preferred
answers)

Newspaper
Television
Friends & Family
Brokers
Others

Question 12: What type of investor you are?

a) Aggressive investor willing to take more risk.
b) Moderately aggressive investor willing to take some risk.
c) Moderately conservative investor willing to take less risk.
d) Conservative investor willing to take only minimum risk.

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Question 13: How Important is each of the following factors to your investment? (✔your
preferred answer)

Very Slightly Not

Factors Important
Important Important Important
Information about investment avenues
Level of Income
Interest Rates
Short term capital gain
Long term capital appreciation
Dividend policy
Minimizing risk
Family/Relative’s opinion
Brokers/Financial advisors
Reviews of Newspapers/Magazines
Financial statements/ Annual reports
Past experience
Reputation of firm
Market performance of firm
Stock price per share
Company history
Profitability of investment

Question 14: Give your opinion regarding the influence of quantitative factors on your
investment decision. (✔your preferred answer)

Strongly Somewhat Strongly

Factors Agree Disagree
Agree Agree Disagree
Return on Investment
Risk
Pay – Back Period
Dividend payout ratio

Stock price per share

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Question 15: Give your opinion regarding the influence of qualitative factors on your
investment decision. (✔your preferred answer)

Strongly Somewhat Strongly

Factors Agree Disagree
Agree Agree Disagree
Image of firm
Size of firm
Service quality

Firm’s Operations

Question 16: Identify if you are influenced or not by the following factors while making
investments in the stock market. (✔your preferred answer)
Not Slightly Moderately Highly
Factors
Influenced Influenced Influenced Influenced
Cash / Stock Dividend
EPS, P/E Ratio
Paid-up / Authorized Capital
Outstanding Shares
Face Value
Net Income
Retained Earnings
Growth of the Firm
Return on Investments
Analyst’s Reports
Rumors
Agent’s advice
Record Date
Goodwill
Company News

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