A Study on Investor Buying Behavior and Financial Literacy in Urban India

Investor behaviour and nancial literacy are some of the most discussed topics in modern times. In the present technology-driven setting understanding the above concerns could lead to major economic boosts for individuals as well as countries. This study treads on to explore these topics by developing a unique nancial index based upon research-backed literature suited for the respondents residing in the urban cities of India and understanding investor behaviour through a series of questions. The paper studies the nancial index developed with respect to the various demographic variables of the respondents trying to establish relations between them. The study nds that 43% of the respondents are nancially literate while almost 10% are nancially illiterate. We observe the relationships between age, gender, residence types, occupation, educational background, investment sizes, income and nancial literacy scores. The study also in pursuance of understanding investor behaviour employs factor analysis techniques to the data gathered and recognizes that the same could be classied into four broad categories namely Active Investors, Proactive Investors, Dependent Investors and Cautious Investors. The analysis of preferences of the modern-day Indian investors through statistical methods reveal xed deposits to be the most preferred vehicle closely followed by life insurance policies and mutual funds. Equity and Gold gain similar scores and one can conclude that the predominantly risk-averse Indian investors have shifted from investing in traditional avenues such as gold and real estate to more technical investment vehicles requiring a greater understanding of the world of nance.


Introduction
Financial literacy is a research eld that has seen dramatic growth over the past few years. This is due to a lot of economic slowdowns, recessions and the like faced by individuals and economies as a whole.
Household investors are trying to make use of their idle money for generation of passive and new income streams. The individuals are increasingly getting involved in making investment decisions based upon their own analysis rather than trusting an external source in hopes of understanding their nances better and staying away from the increasing scams and frauds that continue to provide shocks to the nancial systems of the world. Technology has played a huge role in educating investors and increasing awareness among them regarding the different investment avenues available. Although, there is no concrete de nition of nancial literacy or how it is measured there have been loads of studies in this eld.
It has been de ned as -"The ability to use knowledge and skills to manage nancial resources effectively for a lifetime of nancial well-being" (US FLEC 2009). Financial systems of a country are now faced with the risk of nancially indebted consumers which represents a huge risk for the country's economy and thus it has become of paramount importance that it measure nancial literacy levels of its citizens along with being able to understand investor behavior and the reasoning behind the same.
The growth in Indian economy is sustainable only if the retail consumer would invest in productive nancial assets, rather than the unproductive physical assets. Simultaneously, the nancial institutions need to come forward and take the responsibility to educate the investor about the various nuances of the nancial markets so that they can take the conscious decisions. The investor would feel con dent to make investments if he himself is nancial literate.
This paper aims to compute and evaluate the nancial literacy levels of the respondents residing in urban areas of India and thus prepare a nancial index to compare with the respondents' demographic pro les using appropriately designed surveys which include broad sets of items. Along with assessing the nancial literacy levels the paper also embarks on understanding investor behavior regarding purchase of nancial products for the same sample population and gaining insights as to the most preferred investment avenues of the individual investors as we assume that this could provide a wholesome view of the investors and investing behavior in India. Barbic Lucic & Chen (2018) in their study on measuring responsible nancial consumption behaviour found that nancial decision making is a very complex eld involving a load of variables, multiple motivations could be affecting purchase decisions. Tatzel (2003) people that believe money represented power or status were more likely to engage in overspending or irresponsible consumption decisions as a result of the same.
Stolper & Walter (2017) in their study Financial Literacy, Financial Advice and Financial Behaviour have concluded that around the world nancial literacy levels are highest among Germans but even in such a country, half of the respondents were not able to answer the Big Three questions (Lusardi and Mitchell,2008)correctly which meant there was a massive room for improvement. They also summarized that in Germany and other countries least educated and lower income population were the ones with the least nancial literacy and therefore were prone to making nancial mistakes.
Visa Financial Literacy Survey (2012) found that Indians are among the least nancially literate people across the globe under which the youngsters and women were the most illiterate with respect to nancial literacy. The survey ranked India as 23 rd out of 28 countries represented in the survey. Parimalakanthi & Kumar (2015) observed that education of investors was an important aspect for investors in the city of Coimbatore as they wanted to gather as much information from sources like their friends, peers and investment experts as they could before arriving at an investment decision. Most of the investors invested in savings accounts followed by tangible instruments like Gold & Silver. They suggested that for many investors the investments were last resort rather than having a plan beforehand and investing according to it which was the reason for investments not doing very well.
Cornelia & Mihaela (2009) consumer behavior is structured in two components being buying and consumption behavior, which states all other advantages being equal the customer is likely to choose that investment that offers them the most gain. In addition to this, fear or regret is another factor that affects the behavior of the consumer which comes into play when the investor doesn't trust the information available with him/her and/or is not likely to be able to process such information. Apart from this demographic, cultural and economic factors also determined consumer behavior. The paper mentions that differences in the cultural values of investors in the European countries determine the investment behavior of the investors. Sultana & Pardhasaradhi (2012) Indians are more likely to choose risk free investments even if they're well educated and have higher levels of income owing to the risk awareness inherent in the Indian mindset.
Geetha & Ramesh (2011) analyzed the investment choices of people in the city of Kurumbalur. The author noted that the respondents were not very aware of choices such as stock market, equity, bonds and debentures. They instead were aware of and gave more importance to traditional choices such as Life Insurance, PPF, NSC, and bank deposits along with small savings avenues such as post o ce savings. The author also notes that income levels play a huge role in consumers making safer choices like bank deposits, PPFs or higher risk avenues like stocks, mutual funds etc. In the work we also nd that with age group of 51-60 years people preferred life insurance more than other avenues. Charkha & Lanjhekar (2018) in their work involving studying the investment and saving patterns of privately employed Pune residents found that even though majority were well aware of the different investment avenues they preferred to invest in bank deposits and real estate as safety was a very important factor considered for investment as a result of which other avenues were less favourable. The author also notes that the city as such has a real estate market which was always on the up which meant people favoured investment in the same. The study also nds that there was a signi cant relationship between level of income and awareness of investment alternatives with higher income groups being more aware.
Bhushan, Puneet&Medury, Yajulu. (2012) focused on investment preferences by working adults and found that gender played a role in deciding investments as males preferred Mutual funds and Life Insurance policies whereas their counterparts preferred recurring deposits and Market Investments. The study also indicated that type of employment was a factor as privately employed individuals were less risk averse as compared to government employees who played it safe. The study also found that married individuals preferred safer instruments even if they lacked returns. Giri (2018) found that beliefs and subjective norms affect attitudes towards purchase behaviour. The purpose of buying insurance policies could be broken down into tax saving, bequest purposes or because of social in uences.
Nor & Noryati (2012) higher income and greater investment experiences increases the level of risk the investors are willing to take and also increases their tolerance level of such risk and as the tolerance rises the investors end up choosing riskier investments.

OBEJCTIVES OF THE STUDY:
1. To develop a nancial literacy index using the big three question model. (Lusardi & Mitchell, 2008) 2. To explore the role of nancial literacy index on investment behaviour.
3. To explore the determinants of various investment behaviour of respondents.

4.
To understand the preference of the respondents amongst several nancial products.

RESEARCH METHODOLOGY:
2.3.1 Sample: The sample was drawn primarily from occupants of metro cities being Kolkata, Mumbai, Delhi and Chennai apart from which responses were received from residents of other cities including Hyderabad, Bengaluru, Ludhiana and Bhubaneswar.

Sampling Technique:
The study used convenience sampling techniques for collection of primary data.

Sample Size:
A total of 100 responses were received which were complete and ready to be analysed for the purposes of this paper.

Data Collection:
The primary data in a survey model was collected through the use of Google forms which were sent to random groups of people through the use of social media platforms. The paper utilizes a descriptive research method. The respondents 2.3.5 Questionnaire: The survey form was split into four sections to enhance the respondents' accuracy. In the rst section of the survey, the respondents were asked simple questions relating to their demographic details, their type of residence, number of members in the household, occupation, income levels and were asked to give an estimate as to the portion of their income which they use to invest in various investment avenues.
The second section was targeted at attaining information as to the Investment choices of the investor.
For this, the respondents were asked to rank their investment preferences based on their actual investments. The choices for which were Fixed Deposits, Mutual Funds, Life Insurance, Shares, Debentures, Corporate Fixed Deposits, Gold and other avenues which was left open for the respondents to reply in which they stated other investment avenues like Real Estate and Provident Funds.
The third section of the survey was targeted at measuring the levels of nancial literacy of the respondents. There exists no universal de nition of nancial literacy and how its measured. Therefore this research adopts a module which has been devised based upon the big 3 questions (Lusardi & Mitchell ,2008) as it is a widely popular measure of nancial literacy as has been seen in many studies conducted all over the world that have tried to measure the nancial literacy. The questions are fairly simple and straight forward and thus are an appropriate measure. A version of the big 3 questions more suitable for the Indian respondents was designed for this paper and thus the 3 questions that were asked.
In the nal section they were asked 19 questions to understand their investment behaviour represented on a Likert Scale with options being, 'strongly agree', 'agree', 'neutral', 'disagree' and 'strongly disagree'.

Statistical Tools and Technique:
Factor analysis technique has been used to study investor behaviour which primarily involves data reduction and summarization on the lot of correlated variables/attributes being studied using the IBM SPSS Statistics Package. The relationships among the attributes are analyzed and represented in terms of the underlying factors.
Chi -Square test was applied in testing hypothesis at 5% level of signi cance. Descriptive analysis was utilized. Data was tabulated and analyzed using Microsoft Excel, 2013.
Garret Ranking technique was used to determine the preference based ranking of several investment products. The respondents were asked to rank their investment preferences which were transformed into unit scores by using the following formula Per cent position = 100 (Rij -0.50) / Nj Where,

Nj -Number of investment ranked by the jth respondent
The percent position is converted into scores on the basis of the table formulated (Garett &Woodworth, 1969). The next step includes for each factor the scores of the individual respondents' being summed, then divided by total number of respondents for whom scores were added. These mean scores for all the factors were arranged in descending order and thus ranked. (Garret HE, 1981)

LIMITATIONS OF THE STUDY:
This research has its set of constraints that range from its methodology to its scope.
The nancial literacy tests incorporates 'the big-3'. The bene ts to the big -3 question model in assessing nancial literacy include the ease of adding it to questionnaires and assessing the degree of knowledge of general nancial principles and elementary calculations of the investors however this is in no way a complete measure of precisely measuring the nancial literacy levels as there are many other questions and measures one must embrace to accurately ascertain the nancial literacy levels.
The sample size of 100 respondents though large is still insigni cant when compared with the 1.2 billion population of India with different demographic aspects unique to the country. The results are location speci c to metro cities and certain urban cities which the respondents belong to, thus not representative of the different socio economic variables existing in India.
The Big-3 questions could be built upon by adding other elements to further researches including dimensions such as retirement planning, tax and legal implications, risk taking ability among others.
In determining the investor behavior in pursuit of an investing decision into nancial products a set of 19 questions were asked in this study. However, there are many other questions that could be asked of the respondents which would give a complete picture of the investor behavior and just like in assessing nancial literacy this aspect as well could be made even more representative of real world scenarios by asking further questions related to this topic.

FINANCIAL LITERACY INDEX
A nancial literacy index was prepared to be analysed with the demographic factors using testing of hypothesis and analysis of variance. The mean nancial literacy score was 2.05 with a standard deviation of 0.998737 and the median score was observed to be 2. The respondents were classi ed on the basis of the Lusardi & Mitchell questions into four categories as -the ones who got none of the questions right scoring a 0 to be 'Financially Illiterate', getting one answer right as 'Somewhat Financially Illiterate', getting two questions right as 'Somewhat Financially Literate' and getting all the questions right as 'Financially Literate' and the same is represented in Table-1.

Table 1 -Financial Literacy Scores
It can be observed that 43% of the respondents were declared as nancially literate getting all the questions right whereas 28% of the respondents got one question wrong and 20% and 9% of the respondents got two and all three questions wrong respectively. Thus, 9% of the respondents were declared as nancially illiterate.
Next, these scores are analysed with the demographic variables of the respondents and the same is represented in Table-2. Age Majority of the respondents (54%) fell in the category of age under 25 out of which 23 (43%) obtained scores of 3 which indicate that majority of the respondents under age of 25 are nancially literate. On the other hand 5 (9%) respondents under the age of 25 scored 0 and thus were classi ed as nancially illiterate. The highest nancially literates were observed in the 36-45 years category (50%) and thus one may conclude that these individuals are more likely to have enough income to invest along with greater understanding of the nancial systems as they also had just 7% being declared nancially illiterate.

Gender
The table 2 shows that male respondents (61%) have lower nancial literacy levels as compared to female respondents (39%) as 44% of female respondents scored 3 compared to 43% of male respondents scoring 3 and 31% female respondents scored 2 as compared to 26% male respondents scoring 2 marks. Male respondents were also lesser as compared to female respondents in scoring 1 with 15% as compared to 23% respectively. Although more female respondents were nancially illiterate (10%) compared to males (8%)

Education
It is observed that education played a crucial role in determining nancial literacy as respondents having education of graduate and above showed highest levels of nancial literacy (56%) as compared to graduates (33%), respondents with primary schooling (50%) and respondents with up to secondary schooling (50%). Although it is observed that majority of the nancially illiterate respondents (66.67%) belonged to graduate level of education. With only (11.11%) belonging to lesser than graduate levels of education.

Residence Type
It can be said that residence type plays a role in determining nancial literacy as respondents living in rented homes had more nancially literate population (57%) than those respondents belonging in self owned homes (39%), although they did have more nancially illiterate population (13%) as compared to the (8%) but scores of 2 and 1 on the nancial index were higher for self owned home residents (30% & 23%.) as compared to (22% and 9%)for rented home residents respectively.

Household Size
Upon observation of Table 2, it is seen that the highest nancial literacy scores were observed with households having 4-6 members (49%) followed by households with more than 6 members (41%) which can translate to one needing more sources of income to feed and provide for more members of the household. Residents of households with more than 6 members saw none of them being nancial literate (0%) on the contrary 18% of the respondents belonging to households of 1-3 members were declared nancially illiterate.

Occupation
Analysis of the table 2 reveals that the most nancially literate respondents 22 (52%) belonged to privately employed category (42) followed by self employed respondents 17 (40%) of 43 respondents and the most nancially illiterate population 2 (20%) out of 10 belonged to the homemaker category followed by self employed (9%) with 4 out of 43 respondents.

Monthly Income
The analysis of the table 2shows that income levels go a long way in determining nancial literacy levels as of the 14 respondents in the highest earnings category, 9 (64%) were classi ed as nancially literate with none being nancially illiterate. Of the 17 respondents earning in the Rs. 25,000-Rs.50,000 category, 9 (53%) were classi ed as nancially literate obtaining a score of 3 with none of them being nancially illiterate. The most nancially illiterate respondents were seen in the lowest income category of below Rs. 25,000 having 4 respondents (44.44%).

Invested Size
This compares nancial literacy levels on the basis of the actual investment size as a proportion of the respondent's earnings. The analysis reveals that invested size plays a signi cant role in determining the nancial literacy levels as the respondents belonging to the highest band of investment size that is 'Above 25%' scored highest on the nancial literacy index with 6 out of 6 respondents having a score of 3 and perfect (100%) nancial literacy. The most nancially illiterate scores were seen in the investment size bands of 8-12% and 2-5% both having 15% respondents scoring a 0 and being classi ed as nancially illiterate. The most 'somewhat nancially literate' with score of 2 were seen in the less than 2% invested band being 35% of the total. The above is the null and alternate hypothesis for the demographic variables as compared to the nancial index individually and not all the demographic variables taken as a whole being compared to the nancial index.
Using the chi squared test analysis it is seen that none of the demographic variables show a p value of less than 0.05 at 5% level of signi cance, since the p values are all greater than 0.05 it indicates that at 5% level of signi cance we fail to reject the null hypothesis and thus can conclude that Financial literacy is independent of the demographic variables being considered in this paper.  Each factor is comprised of all of those variables that have factor loadings greater than or equivalent to 0.4 as are depicted in Table-5. Then Varimax method is utilized to redistribute the variance so that the factor loading pattern and percentage of variance of the factors is different as shown in Table-   These variables point to the fact that the investor as a whole has an active behavior in investing their money. The table implies nancial knowledge plays a signi cant role in making nancial investments and this is observed to be true as it has the highest factor loading for the rst factor.
Second Factor -Factors that suggest Proactive Investor Behavior The second factor suggests proactive investor behavior in relation to the variables as presented in the Table 7 along with the factor loadings and labels. The table reveals that the variables in the second factor point to a proactive approach taken by the investor in their investing decisions indicated by 'Investors have a diversi ed portfolio' having the highest factor loading score (0.715) followed by 'Investor takes high risk' (0.686), 'Investing is easy' (0.617), 'Regularly monitors investments' (0.592), 'Technology has made investing easy' (0.555) and lastly 'Investments increase prestige' (0.523). The third factor is labeled as Dependent investor in uenced behavior. The variables along with factor loadings 'Advertisements in uences investor' (0.707) followed by 'Colleagues in uence investor' (0.700), 'Investor nds di culty in reading investment documents' (0.595) and 'Investments are made for tax saving' (0.400) are indicative that the investor is largely in uenced by external forces in their investing decisions. The fourth factor represents Cautious investor behavior which includes four variables that are shown in Table 9 along with their factor loadings and labels.

INVESTOR PREFERENCES OF DIFFERENT INVESTMENT AVENUES
The preference and ranking of different investment avenues by the respondents are analysed using the Garret Ranking technique. The

FINDINGS:
Financial literacy levels of the respondents were analysed by preparing a nancial literacy index by scoring the respondents on a scale of 0-3 on the basis of the answers provided to the big three questions. It was noted that none of the p values obtained for each of the demographic variables when computed along with the nancial literacy scores were less than 0.05 at 5% level of signi cance and thus it was concluded that nancial literacy is independent of the demographic variables being considered in this study.
Although for the data collected it was observed that gender, age, city, residence types, household size, income levels, invested size, occupation and education levels showed signi cant levels of signi cance with the Financial Literacy scores. These variables are important considerations for understanding the nancial literacy index as has been shown under the analysis in Table-2.
Out of the sample size of 100 respondents we observed that Fixed Deposits were the most preferred investment avenue followed by LIC , Mutual Funds, Gold, Shares, Corporate Fixed Deposits, Debentures and Other avenues respectively which were all ranked using Garret ranking table. 24% of the respondents ranked Fixed deposits to be there number one preference closely followed by Life Insurance and Mutual Funds at 21 and 20 rst ranks respectively. It can be thus said that Indians are risk averse investors as the above investment avenues have relatively low risk as compared to other avenues such as Shares or Debentures which were ranked 5 th and 7 th It was also observed that Life insurance was ranked 8 th by only 3% of the respondents and thus one may infer that an overwhelming majority of investors do own life insurance schemes as investment, the same could also be the case for mutual funds with only 6%of the respondents ranking it as the least preferred investment avenue. It is interesting to note that Shares and Gold were quite close having mean ranks of 53.46 and 53.2 and ranks 5 th and 6 th respectively that contrary to empirical evidence regarding Indian investors are moving away from preferring gold as the most favoured investment avenue. All of these suggest different mindsets of the investor. The respondents were classi ed into the above stated categories based on their answers to the behavioural questions which underwent factor analysis.

Recommendations
From our analysis and ndings of investor behaviour we could see the four broad categories of investor types. These majorly point to the trust investors place in the nancial market to give them returns. This trust could make a person a very sound investor. But the trust has to be created and the same can only be done if the general public is aware of the options available to them and if they see the bene ts associated with those options bearing relatively manageable levels of risk which is possible if they are nancially literate.
Indian investors have to move away from only investing in traditional areas such as gold, real estate and xed deposits. India has emerged from having a very shaky nancial economy with very little focus on nancial markets as a real area of earning a livelihood. Investing in the stock markets is still seen as a taboo in certain households because of the uncertainty or memories of nancial shocks that are present in the minds of the people. However, the country has now moved on from those times and the nancial markets are much more inviting and accessible to the general public. The general people must spend more time and effort on understanding the nancial options available to them. As there are nancial products that certain people must have never even heard about at rst there might be a lot of resistance but this is where the government must step in. The institutions could easily inculcate this investing behaviour by adding tax bene ts. Indians generally have a tendency of investing just for tax saving purposes and the same could be exploited by the government in coming out with modern taxation systems. The tax regulations should also incentivize the retail investors who invest for long term in equities. The government must develop vocational courses regarding nancial literacy and take nancially sound decisions prevents huge nancial shocks to the country.
Private funds, institutional investors, all kinds of banks must follow greater transparency in their processes. Documentation process must be simpli ed as to be understandable in layman terms as this improves the level of trust. People are scared to enter into purchases as they are scared of what the nelines might say and this is a problem which is easily solvable. There should be emphasis on regulation of nancial markets and on educating the prospective investor about the nancial products available.
The consumers must understand the bene ts of portfolio investing by spreading the risk of their investments across different kinds of products yielding different risk portfolios and not parking their funds in one investment vehicle. The use of equity as an investment could be used to beat in ation in the long run. The consumers could easily start the habit of investing into mutual funds by utilizing nancial products like SIPs (Systematic Investment Planning) which one could invest with as low as Rs. 500.
Many of the stock SIP agents also showcase the top invested funds and show graphs that are easily understandable by the general public and with this information have their money invested into the markets instead of sitting idle, hence give them more returns.
The implications of the results of this study lead one to believe that policy makers, academics and o cials involved in the eld of nancial education are the ones that most bene t from this paper. There are other technical tools available to proceed to the next stage of study on nancial literacy which can be adopted by academia to arrive at useful results for their areas of study

Conclusion
The study focused on understanding the nancial literacy levels and investor behaviour of residents from majorly metro cities of India and some other urban cities. The nancial index developed in this study indicates that only 43% of the respondents could be classi ed as nancially literate getting all the 'Big-3' questions right. Almost, 10% of the respondents were classi ed as nancially illiterate answering none of the questions right. These are manageable gures and the nancial literacy could very well in fact be increased by taking just a few key steps.
The study nds that xed deposits are still the most preferred investment vehicle but mutual funds and shares are closely following the trend and this could be attributed to the fact that investors are more aware about their investing options due to wider nancial knowledge and inclusion supplemented by technology available at the ngertips of every individual. This is a very healthy trend as more and more people are looking at mutual funds as relatively safe investments as compared to equities and debentures among others. Gold and shares almost gained the same mean scores and thus it can be said that Indians are moving away from traditional investment avenues.
The study also nds that there is a pattern to inexplicable investor behaviour and investors could be classi ed into four categories based upon their investing attitudes and behaviours namely, Active Investors, Proactive Investors, Dependent Investors and Cautious Investors, each one of them having very different nancial portfolios. The aim of the country must be to have as many active investors as possible and the classi cation makes it much easier to form policies or take decisions keeping the interests of each group parallel.
India can be seen moving to relatively higher levels of nancial literacy which could mean strengthening of the nancial backbone of the country, thus each individual being able to have an active role in determining the stock market behaviour rather than the reverse.

Acknowledgments
Surpassing'milestones towards a mission sometimes gives us such a degree of jubilance that we tend to forfeit the precious guidance and help extended by the people to whom the success of mission is solely dedicated.' A project depends on contributions from a wide range of people for its success. I would like to take this opportunity to acknowledge the many people who have contributed a great deal of their time and expertise to the development of this project. Firstly, I express my sincere thanks to my project guide Dr.Saswati Chaudhari for getting me started and for guiding me throughout the project. Without her knowledge, guidance and experience, this project would not have gone so far. She has been a source of constant inspiration, stimulating me to learn and pick up minute of the topics, making my learning process a worthy experience. She has given a sense of completeness to this project and ensured it was full proof by continuously monitoring my work. Also, I would like to thank my family, friends and relatives for their continuous support throughout the time period of my project. Above all, I would like to thank God for giving me the con dence and patience to successfully complete the project.

Con icts Of Interest
The author declares that there is no con ict of interest.