Microsoft Word - 4. The final paper-8.doc

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

 550

Identifying Factors influencing preference

towards Post Office Saving Schemes

(A research paper with reference to Garhwal region in Uttarakhand)

Ritika Aggarwal

Research Scholar, Department Of Management

Uttarakhand Technical University

Dehradun, India

ritikaaggarwal2007@gmail.com

Abstract - India Post Office Savings Bank is widely

known and traditional formal institution offering

saving products. Its outreach has been ceaselessly

increasing both in terms of number of accounts as

well as number of branches, especially in small

regions of the country. Globalization has brought

outsized revolution in the financial sector of the

country, which proves to be challenging for POSBs.

Liberalization has substantially increased better and

innovative investment possibilities to the investor.

However, India POSB has positioned itself as a

reliable agency of Government of India. It is due to its

competitive advantage of geographical accessibility

and product differentiation on the important

attributes of safety, security and risk free factor. The

present paper examines the preference of investors of

Garhwal region towards different investment

schemes of Post office and factors that motivates them

to choose a particular investment scheme of post

office.

Keywords: India POSBs, saving products,

motivating factors, de-motivating factors, investor’s

preference

I. INTRODUCTION

India is one of rapidly growing economies of Asia.

Emergence of several significant trends such as

liberalization and globalization; demographic shift

towards urbanization monetization of the economy

especially the agricultural sector giving rise to a

corresponding demand for financial services by all

sections of the society; and government policy to

increase funding for weaker section programs has

necessitated changes in financial framework of the

country. Due to the on-going reforms the people’s

expectations and requirements from life are

changing. Investments have become a basic

necessity for everyone. Volatility in the market,

increasing expenditures, uncertainties, rising

inflation, etc. is letting large section of society to

showing their interest and to investing their funds

in different nature of investment products. Many of

them provides better returns, high interest rates, tax

savings, high quality IT related services and much

more benefits. At one place where a large bundle of

such investment products are offered in the market,

Government of India is still running and sustaining

the oldest Postal saving option to saving money. At

present where private players are capturing the

market, it is a matter of concern whether Post

Office Savings Banks are still preferred by society

or not, whether it is still seen as important saving

option or not. Consequently, an attempt has been

made to find out the investment preferences

towards different post office saving schemes and to

know the reasons behind the interest of investors of

Garhwal region, in the state of Uttarakhand.

Accessibility of researchers with the investors of

Garhwal region has motivated them to select them

as preferred sample of the study.

The present paper is concerned with fulfilling the

following objectives:

• To study the preference of the investors for

different post office saving options.

• To find out the factors that influence investors to

invest among post office saving products.

• To find out those factors that demotivates

investors towards POSB schemes.

• To study the impact of occupation and education

variables on the investor’s behaviour towards post

office saving schemes.

A. Post Office Savings Banks (POSBs)

The Post Office Savings Bank (POSB) is the oldest

and largest banking institution in the country. It

operates more than 238 million Savings Accounts

(India Post Annual Report 2011-2012) in more than

154000 Post Offices. POSBs in India were

established in 1882 by the British colonizers to

mobilize savings. It is an agency function carried

out by the Department of Posts on behalf of the

Ministry of Finance, Government of India. The

Ministry of Finance remunerates the Department of

Post for the Savings Bank work at a rate fixed from

time to time. Presently, seven post office savings

schemes are operated across the country. These

schemes are: Savings Account, Recurring Deposit

(RD), Time Deposit (TD), Monthly Income

Scheme (MIS), Public Provident Fund (PPF),

National Savings Certificate (NSC) and Senior

Citizens Savings Scheme (SCSS). The sale of

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

 551

Kisan Vikas Patra Scheme has been discontinued

by Government of India w.e.f. 1

December, 2011

and this does not affect those who already have this

certificate.

II.

REVIEW OF LITERATURE

The objective of this study is to explore factors that

influence investors to invest among post office

saving products. The present study examines the

factors that appear to exercise the greatest influence

on the investor decision making. It includes the

factors investigated by previous studies like

sources of investment advice, purpose of

investment, education and occupation. Based on

review of literature study identifies influence of

these factors on post office investors decision

making. In addition to factors extrapolated from

academic sources, study also introduces additional

factors generated through personal interviews that

are supposed to influence the investor decision

making. These factors are suggested by the

professional and contextual sources. These factors

that seem to be influencing individual investor are:

criteria of agent selection, motivating features of

post office saving schemes and demotivating

factors. Since respondents’ orientation may be

reflected in their answers, they are asked direct

questions covering all the shortlisted factors.

Factors considered by previous studies are as

follows:

1.) Sources of investment advice - NCAER Report

(2011) found that while applying for an IPO,

investors across all income/education categories list

newspapers as the single source of information. Dr.

C. Thilakam and Dr. Ganesan (2012) observed that

respondents have gained knowledge about

saving/investment avenues through business

channels. Sanjay Kanti Das (2011) reveals that for

investment in share market, friends & relatives are

the primary source of information and for insurance

market others like agents and development officers

plays the key role. Advertisement, brokerage firms

and other sources have almost a similar impact for

investment in mutual funds. His study shows that

the association between the source of awareness

and preferred investment avenue is not significant.

Study of Anna A. Merikas, Andreas G. Merikas,

George S. Vozikis, Dev Prasad (2011) concludes

that experienced investors rely mostly on wealth

maximization criteria and they are self-reliant

ignoring inputs of family members, politicians, and

co-workers when purchasing stocks. NCAER

Report (2011) found that a significant number of

investors find the advice of brokers more useful.

The survey reveals that while participating in

mutual funds as well as in the secondary market, a

significant majority depends on the advice given by

intermediaries and friends. Nick Chater, Steffen

Huck and Roman Inderst (2010) find that advice is

ubiquitous in the retail investment market. Trust in

advisors is high, but consumers are often unaware

of potential conflicts of interest. Sharon Collard

(2009) finds that many people may rely on

professional financial advice to make pension

purchase and investment decisions, research from

the UK and Australia has highlighted concerns

about the quality of advice provided to individuals.

Pravin Narayan Mahamuni, Santosh Kalabhau

Apte and Dr. Anand Ganpatrao Jumle (2011)

studied that people get the information regarding

investment opportunities present in the market

from their professional consultant. After that the

available information sources like as, TV ads, web

sites, newspaper, friends, etc.

2.) Purpose of Investment - Haruna Issahaku (2011)

found reasons account for households saving and

investment behaviour are to cope with unexpected

emergencies, buy some assets, pay for predictable

expenses, allow for future consumption, make

provision for retirement, to accumulate enough

funds for investment, employ the teaming

unemployed youth, reap higher returns and luxury.

The World Bank new flagship report (2012) finds

that macroeconomic vulnerability and the resulting

unstable income streams, the risk of

unemployment, and health risks are strong

precautionary motive for savings of Turkish

households. Ms. Babita Yadav and Dr. Anshuja

Tiwari (2012) revealed that majority of the

respondents invest in life insurance for tax benefit,

followed by the risk coverage & saving, premium

charges, security with high return and insurance

services.

3.) Educational Qualification - SK Das (2011) finds

that respondents with education below tenth

standard invested mostly in insurance followed by

banks and property. Respondents with education up

to under Graduate level mostly invested in

insurance products followed by share market,

banks and mutual fund. Respondents with

graduation or above education level invested

mostly in insurance products followed by share

market, banks and mutual funds. His study reveals

that the association between the education and

preferred investment avenue is not significant. In a

NCAER report (2011), it was found that twenty six

per cent of households with more than 15 years of

education prefer to invest in secondary markets.

Most participants in the derivatives market have an

average education between 11 to 15 years. Results

of study of Muhammad Naeem Akhtar, Kashif ur

Rehman, Ahmed Imran Hunjra (2011) indicated

that individual investors with higher educational

qualifications have more intentions for short term

investments as compared to the investors with other

qualifications. The World Bank new flagship report

(2012) discussed that the small group of highly

educated has a saving rate of more than 20 percent,

while the large group of least educated saves about

10 percent. The analysis also shows that the more

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

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educated have larger holdings of financial assets

than the less educated ones.

4.) Occupation - SK Das (2011) described that

respondents having salaried income invested

mostly in insurance products followed by banks,

and stock market. Self-employed people also show

the keen interest in insurance products as like as

salaried people except next high degree of

preference towards the investment in case of share

market followed by banks, mutual fund and

property. Retired people invested mostly in banks

followed by share market, mutual funds and

insurance products. His study reveals that the

association between the occupation and preferred

investment avenue is not significant. NCAER

report (2011), found that a rupee of surplus income

distributed across investment options does not

seem to be affected by the occupation of the head

of the household. However Business and white-

collar workers hold more risky assets than their

blue-collar counterparts. The World Bank new

flagship report (2012) found self-employed

households tend to save more, while households

where there is a green card holder save less,

controlling for the income effect. Prof Madhu

Iyengar, Dr. Vijaylaxmi Iyengar and Dr. Shailesh

Tripathi (2012) finds that salaried people and

businessmen are inclined to invest more in risky

assets and students invest in stock markets to make

money with the aim of earning more. Ms. Babita

Yadav and Dr. Anshuja Tiwari (2012) concluded

that there is a no significant association between

occupation and customer insurance investment

decision.

III.

OBJECTIVES OF THE STUDY

The present paper is concerned with fulfilling the

following objectives:

• To study the preference of the investors for

different post office saving options.

• To find out the factors that influence investors to

invest among post office saving products.

• To find out those factors that demotivates

investors towards POSB schemes.

• To study the impact of occupation and education

variables on the investor’s behaviour towards post

office saving schemes.

IV.

RESEARCH METHODOLOGY

The changing technological environment and IT

related services presents an enormous challenge for

traditional postal banking business. Due to increase

in number of financial products day by day, the

investors’ behaviour would be changing

significantly towards POSBs. To study the

investor’s behaviour and reasons behind the

interest of investors towards POSBs a sample size

of 320 is chosen at random. Sample belongs from

both the genders in different demographic

characteristics. Questionnaire is used as a main tool

to collect primary data. To test the hypothesis

Pearson's chi-square test is applied. The analysis

and interpretation of the data collected are

represented in tables using SPSS software version

20.

DATA ANALYSIS AND FINDINGS

Table 01 provides demographic characteristics of

the sample. A demographic characteristic of the

respondents reveals that majority of the

respondent’s falls in the age between 25-40 years.

67.8 percent belong to male respondents. Most of

the respondents (60.0 percent) are married. 26.9

percent of the sample is having four family

members. Sample is dominated by those

respondents who have professional degree as

indicated by 37.8 percent. Most of the respondents

belong to category who is earning fifteen thousand

to thirty thousand INR. 50.0 percent of respondents

belong to salaried class category. Multiple response

analysis (shown in table 02) was done with the help

of SPSS version 15.0. The study reveals that 27.4

percent of respondents are interested to invest in

banks and 25.5 percent in insurance. 13.1 percent

favour real assets to invest. 17.2 percent of the

respondents finds good to invest in post-office.

Mutual funds are preferred to direct investment in

share market. 8.3 percent prefer mutual funds and

7.1 percent prefer share market investment. Only

1.4 percent respondents choose NBFCs as an

investment avenue in their portfolio. NCAER

report (2011) presented that find that mutual funds

constitute the single largest allocation (40.8 per

cent) compared to all other options, 21.25 per cent

of all households prefer to invest in the secondary

market. Other choices such as derivatives and

bonds are even less preferred. The World Bank

new flagship report (2012) found informal

instruments of saving include gold, cash and

foreign currency, as well as loans to family/ friends

and businesses for savings of Turkish households.

Dr. C. Thilakam and Dr. Ganesan (2012) observed

that majority of the respondents have been

comfortable with savings in fixed deposits, chits,

post office etc. He inferred that 73.46 percent

respondents have invested in life insurance

policies, 57.07 percent investing in equity share

market, 53.17 percent invested in gold/silver and

62.63 percent invested in virtual real estate

business. K. Senthil Kumar, C. Vijaya Banu, V.

Lakshmana Gomathi Nayagam (2008) concludes

that the rank preferences of the financial product

studied are post office, bank deposit, gold, real

estate, equity investment and mutual fund. Pravin

Narayan Mahamuni, Santosh Kalabhau Apte and

Dr. Anand Ganpatrao Jumle (2011) found that most

of studied investors invest their money in

insurance. As pointed in table 03, 38.2 percent of

the respondents possess investment policy in post

office and 46.5 percent do not possess investment

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

 553

policy. Rests 15.3 percent of the respondents are

interested to invest in post office in future period of

time. Table 04 highlights the study of investment

preference towards various schemes of Indian Post

Office. It reveals that 27.2 percent respondents are

interested to invest in 5-year post office RD

account. 13.5 percent prefer NSC investments. 13.1

percent finds good to invest in post-office saving

account. 12.2 percent prefer monthly income

account and 12.0 percent prefer KVP investment.

Only 11.4 percent prefer time deposit account as an

investment avenue option. Rest 6.8 percent and 3.7

percent prefer 15-year PPF account and senior

citizens savings schemes respectively. The analysis

on factors that motivates investors to invest in post

office saving account is pointed out in table 05. It

brings out that 39.8 percent prefer post office

savings because of safe, secure and risk-free

investment. 19.2 percent invest because of tax-free

interest on savings in post-office. To avail the tax

benefit under sec. 80(c) of Income Tax Act 13.6

percent prefer post office savings. 11.3 percent of

the respondents perceive post office schemes to

have attractive rate of interest. 6.9 percent

preference is because there is a facility of

nomination in post office. Remaining 1.2 percent

each prefer post office to save due to benefit of

changing nomination at any time and instruments

are transferable to any post office anywhere in

India. Pravin Narayan Mahamuni, Santosh

Kalabhau Apte and Dr. Anand Ganpatrao Jumle

(2011) found that most of the respondents invest

money for tax saving purpose. Mixed replies as laid

out in table 06 about sources of investment advice

shows that 41.4 percent are inclined more on their

relatives and colleagues. 12.6 percent of the

investors acquire knowledge from newspapers,

12.1 percent from financial advisors and 10.8

percent from media. The other 23.1 percent do not

take help of the above sources of investment

advice. These percentages of investors’ replies in

questionnaire shows that they invest as per their

self-acquainted knowledge or some invest under

the guidance of agents. Analysis on criteria of

selecting an agent in table 07 represents that 38.4

percent of the respondents select agent on the basis

of having personal relationship with the agent. 32.1

percent look at the facilities offered by the agent.

25.8 percent choose agent on his performance

basis. Remaining investors look at other factors

while selecting agent. Multiple response analysis

indicated in table 08 represents that 20.8 percent

respondents are investing their money for the

purpose of acquiring an asset. 23.0 percent invest

for child’s education. Next purpose is for

retirement and old age which occupies 25.7 percent

of the respondents. Child’s marriage accounts for

12.3 percent of the total respondents. 18.1 percent

reveals that respondents are investing for other

purposes like for future safety, saving, emergency,

business expansion, reduce tax burden, for

grandchildren. Works on the factors that discourage

investors to investing in postal schemes (shown in

table 09) disclose the following interpretation: Out

of total respondents, maximum of respondents

(20.3 percent) reported that they are not aware of

the schemes of post office. 14.3 percent of the

respondents say that less advertisement is the

reason for low awareness. 11.1 percent of the

respondents feel that the schemes are less

attractive. 11.5 percent face the problem of IT

related services. Respondents having a belief that

postal savings generate low returns comprise 9.0

percent of the total replies. 10.5 percent experience

that it provide late and improper services. Out of

total responses 7.0 percent do not find agents to be

relied upon. 6.5 percent find liquidity problem i.e.

they think that postal savings cannot be easily

converted into cash. Incompatible hospitality

produces a negative impact on postal savings;

however 8.3 percent respondents realize hospitality

of post office to be incompatible. 0.6 percent of the

replies believe no guarantee of money return. Very

few (0.8 percent) find that as capital appreciation is

low in postal savings; it demotivates them to save

in post office. In NCAER Report (2011) it was

found that inadequate financial resources is the

most import reason for not investing in secondary

markets by household followed by inadequate

information and no skills.

Null Hypothesis (H

01)

: “An individual’s

preference towards post office saving schemes is

not related with educational qualification of the

investors.”

For 28 degree of freedom table value of chi-square

at 5 percent level of significance is 41.337. While

the calculated value (spot Table 10) is greater than

table value, therefore null hypothesis is rejected.

Thus, there is meaningful relationship between

preference towards post office saving schemes and

educational qualification of respondents.

Null Hypothesis (H

02)

“An individual’s

inclination in direction of post office saving

schemes is not associated by means of livelihood

of the investors.”

For 35 degree of freedom critical table value of chi-

square is 107.4185566. In view of the fact that

calculated value (table number 11) is less than table

value, thus, null hypothesis is accepted. So, it is

concluded that occupation and preference towards

post-office savings schemes are not related.

Null Hypothesis (H

03)

: “Factors that motivate an

individual to invest in the saving products of

post office are not linked with educational

qualification of the savers.”

For 28 degree of freedom table value of Pearson’s

chi-square test is at 5 percent level of significance

is 41.337. As it can be seen from the table 12 that

calculated value is greater than table value,

consequently factors motivating investors to invest

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

 554

in post-office saving schemes is related with

educational qualification of investor. Therefore,

null hypothesis is rejected.

Null Hypothesis (H

04)

: “Reasons to facilitate and

stimulate an individual to invest in post office

saving avenues are not allied by occupation of

the investors.”

Study to find out relationship between factors

influencing saving in post office and occupation of

investor is shown in table 13. Given that table

value of

at 5 percent level of significance and 35

degree of freedom is 107.7302775, which is greater

than calculated value. Hence, null hypothesis is

accepted which shows that there is no sustainable

relationship between the two variables.

VI.

SUGGESTIONS

Data analysis highlights that preference towards

senior citizen saving scheme is very low (3.7

percent) in the Garhwal region of Uttarakhand.

Hence, to increase the awareness towards this

scheme in Uttarakhand region management of post

office should focus on specific promotion for

Senior Citizens. Study also indicates that customers

rely more on their friends and relatives in getting

the information on investment avenues. So, it is

suggested that a suitable communication through

direct mailers or social media to be organized to

increase the awareness of public. Facts and figures

shown in table 07 represent that 38.4 percent of the

respondents select agent on the basis of having

personal relationship with the agent and some of

the investors find agents to be unreliable. So a due

care must be taken by the Indian Post Office while

selecting agents. Multiple responses shown in

Table 08 indicate that 25.7 percent of the

respondents are investing in preparation of

retirement. Hence, Specific scheme featuring

retirement benefits should be arranged. In respect

of educational qualification, Post Office Savings

and Investment products are generally preferred by

professional degree holders. So POs can consider

any special focused schemes to attract more

investment from this group. Post office offers

diversify schemes for different needs of society.

But research explains that in Garhwal region of

Uttarakhand, mostly salaried class of society is

inclined towards banking schemes of post office.

So, organization of post office should arrange for

awareness programmes or turn to more innovative

policies catering other class of society. Study

indicates that72.6 percent of the respondents

prefers postal savings due to its safety, security and

tax benefits features. So Indian Postal Savings

should keep up to provide these features in future

also.

Study points out that most of the respondents are

unaware of the schemes offered by post office. Still

a lot of awareness about new postal saving schemes

is required and the reach of schemes should be

checked. Many respondents find postal savings to

be less attractive So, India Post should conduit its

infrastructure, trust and related services into a

much larger role offering innovativeness in

schemes and redesigns its products with change in

benefits. Investors agree that they are unaware of

the postal saving products due to less advertisement

and promotion. It signifies that less promotion is a

big barrier to attract savings. Post office

organization must use the different visual, audio

and audio visual modes of advertisement to

increase awareness and promote POSBs.

Incompatible hospitality, improper IT related

services and late services are major factors that

discourage investors to saving in post office. Thus,

there is need of creating a conducive and friendly

work environment both for the staff and the

customers visiting the Post Offices, providing all

IT enabled services through secure connectivity,

improving the service quality levels in Postal

Savings Schemes.

VII.

CONCLUSION

Study discloses that Post Office Savings Bank in

India differentiates its offer by building a unique

bundle of competitive advantage. It has positioned

its postal saving products as differentiating on the

important attributes of safety, security and risk free

factor. POSBs are still preferred by investors as it

is fully backed by government and functioning for

long. The trust is high in investors where safety of

the deposit money is more important issue than the

returns on investments. The only problem lies is

that it is not taking strong steps to deliver and

communicate the desired position to target

customers. It needs strong marketing efforts that

support the positioning strategy. One of the

important challenges towards Indian Post Office is

the revolution in IT (Computerization, networking,

automation, process reengineering), which has

provided automation technology to the banks and

other financial institutions.

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IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563

Vol. 2, No.6, December 2012

 556

Annexure - Tables and Figures

Table 02: Preference towards Financial

Products

Sl.

No.

Descriptions Percentage

1. Post Office 17.2

2. Bank 27.4

3. Insurance 25.5

4. Share Market 7.1

5. Mutual Funds 8.3

6. NBFC's 1.4

7. Real Assets 13.1

Total Responses 100.0

Table 03: Possession of Post Office

Schemes

Sl.

No.

Descriptions Percentage

1. Yes 38.2

2. No 46.5

3. Thinking To

Invest In Future

15.3

Total Responses 100.0

Table 04: Preference towards Post

Office Schemes

Sl.

No.

Descriptions Percentage

1. Savings Account 13.1

2. RD Account 27.2

3. TD Account 11.4

4. MIS Account 12.2

5. PPF Account 6.8

6. KVP 12.0

7. NSC 13.5

8. SCSS 3.7

Total Responses 100.0

Table 01: Demographic Characteristics

Categories Count Percentage

Age Upto 25 Years

25-40 Years

40-50 Years

50-60 Years

Above 60 Years

116

25.3

36.3

20.9

10.6

6.9

Gender