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Unit 1: Basics of Investment

short term goals in a money market mutual fund or insured certificates of deposit, or a Notes
diversified mutual fund whose goal is safety as well as growth.

Source: http://www.ag.ndsu.edu/money/documents/basics-savings/Saving%203%20-%20Activity%
20Case%20Studies%20-%20Basics%20of%20Saving%20and%20Inv.pdf

1.4 Types of Investors

Investing may look like a jovial, friendly business. The salespeople, the managers, the newsletters
and the advertisements all seem deeply and exclusively concerned with your well-being.

It’s true that most of the investment industry would like to do something nice for the clients and
customers. But in the real world, that pleasant intention is often far from the top of the industry’s
priority list. The industry is highly organized, highly motivated and highly trained to do
whatever it takes to get your money under management.
Indian investors have hung out at the two extreme ends of the risk return matrix – we are usually
at zero risk, with sudden spurts of lunacy. What else accounts for the huge retail participation,
over the years, in dud IPOs, plantation schemes and the Z category stocks in the markets from a
nation of FD-makers and gold buyers? Does that mean that the average middle-class householder
has a wild side to his personality? If the latest from ‘behavioural finance’ (the new economics
branch that studies why investors behave the way they do) is true, then yes, he does.
According to Dr Jeff of the University of Melbourne, identifies three broad types of investors
found operating in the stock market:
 The contrarians

 Trend followers
 Hedgers and holders.
The ‘contrarian’ buys when the rest of the world sells. ‘Trend followers’ are more conservative
and tend to invest in products such as bank stocks. The last is the very conservative ‘hedger and
holder’ – the famous ‘small investor’ of India who wants high return and low risk, preferably
guaranteed by the government. Researchers in this field have also found that investor personality
may differ across asset classes, with more risks being taken with a more familiar category.

!
Caution A person comfortable with real estate may take large risks in property, but may
want to stick to a diversified equity fund for his stock market exposure. Alternatively, a
conservative investor may rank the risk of loss of purchasing power due to inflation
lower than the risk of losing money even in a low-risk equity product.

1.4.1 Other Type According to Researcher

1. Measured Investor
Characteristic
 The measured investor starts investing early, enjoys investing and is happy with his
or her current financial situation.
Strengths
 Regularly rebalances his or her portfolio.

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