PRO

FACT
 Preface

The study of a Management course requires an amalgamated knowledge of

theory and practice. Therefore, the project study is an attempt towards
enhancing the practical knowledge base of students backed by theoretical
concepts and principles.

The study aims to understand the impact of factors which influence the
investors decision.
The survey is conducted over the investors and it is verified that what are the
factors that depends on each other. Thus, the research will also help serve the project
purpose.
 INVESTMENT

IT IS A TERM WHICH HAS CLOSELY RELATED MEANING IN

BUSINESS MANAGEMENT, FINANCE, ECONOMICS AND
SAVINGS.IT IS ACTIVE REDIRECTION OF RESOURCES TO
CREATE BENEFITS IN FUTURE. IT INCLUDES USE OF
ASSETS TO EARN INCOME AND PROFIT.

An investment is a choice by an individual or an organization. In

finance, investment is the commitment of funds by buying securities or
other monetary or paper (financial) assets in the money markets or
capital markets, or in fairly liquid real. Types of financial investments
include shares, other equity investment, and bonds. These financial
assets are then expected to provide income or positive future cash
flows, and may increase or decrease in value giving the investor
capital gains or losses.

TYPES OF INVESTMENT

 SHARES
 DEBENTURES
 MUTUAL FUNDS
 BONDS AND SECURITIES
 ULIP

SHARES

ACCORDING TO SECTION 2(46) OF COMPANY ACT 1956 SHARE IS BEEN

DEFINED AS SHARE IN THE SHARE CAPITAL OF THE COMPANY,
EXPRESSED OR IMPLIED

Evidence of ownership that represents an equal proportion of a

firm’s capital. It entitles its holder to an equal claim on the
firm's profits and an equal obligation for the firm's debts and
losses.

Total capital of company is divided into units of small

denomination. These units are known as SHARES.

When you buy shares of the company you become the owners
of that company. Your fortune rise or fall with that company.
Shares entitle the shareholder to share in the earnings of the
firm as and when they

occur, and to vote at the firm's annual general meetings and

other official meetings.

The following different terms are used to denote different

aspects of share capital:-

1. Nominal, authorised or registered capital –

It means the sum mentioned in the capital clause of

Memorandum of Association is altered. It is the maximum
amount which the company raises by issuing the shares and on
which the registration fee is paid. This limit is cannot be
exceeded unless the Memorandum of Association is altered.

2. Issued capital -

It means that part of the authorised capital which has been

offered for subscription to members and includes shares
allotted to members for consideration in kind also.

3. Subscribed capital -

It means that part of the issued capital at nominal or face

value which has been subscribed or taken up by purchaser of
shares in the company and which has been allotted.

4. Called-up capital -

It means the total amount of called up capital on the shares

issued and subscribed by the shareholders on capital account.

For e.g. If the face value of a share is Rs. 10/- but the
company requires only Rs. 2/- at present, it may call only Rs.
2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the
called up share capital and Rs. 8/- is the uncalled share capital.

5. Paid-up capital –

It means the total amount of called up share capital which is

actually paid to the company by the members.
 6. Face value –

It means the face value of the shares. A share under the

Companies act, can have any value which may be the fixed by
the Memorandum of Association of the company. When the
shares are issued at the price which is higher than the par
value, then that amount is the premium amount and when a
share is issued at an amount lower than the par value, then
there is discount on shares.

7. Buy-back of shares-

Buy back of its own shares by a company is nothing but

reduction of share capital. In the Companies Act, 1956 buy
back of its own shares by a company is allowed without
sanction of the Court. It is nothing but a process which enables
a company to go back to the holders of its shares and offer to
purchase from them the shares that they hold.

8. Issue of shares at discount-

A company may issue shares at a discount i.e. at a value below

its par value. In this Issue of the shares at discount must be
authorised by resolution passed in the general meeting of
company and sanctioned by the company law board. The
discount must not exceed 10 percent unless the Company Law
Board is of the opinion that the higher percentage of discount
may be allowed in special circumstances of case.

9. Issue of shares at premium-

A company may issue shares at a premium i.e. at a value above

its par value. The amount of premium must be transfered to an
account to be called share premium account.

10. Issue of bonus shares-

 Bonus shares are issued by converting the reserves of the
company into share capital. It can be issued by a company only
if the Articles of Association of the company authorises a
bonus issue.

11) Calls in arrears

When the amount of money in respect of allotment, or any

call has not been received, then the money so received is said
to be calls in arrears.

Types of shares:

Shares in the company may be similar i.e. they may carry the
same rights and liabilities and confer on their holders the same
rights, liabilities and duties.

There are two types of shares under Indian Company

Law:-

1. EQUITY SHARES

2. PREFERENCE SHARES

Equity shares

It means that part of the share capital of the company which

is not preference shares. Equity share holder have right to
entitled to dividend and repayment of capital after the claims
of preference shareholder. They control the affaire of the
company. They have right to all profit after the preference
divident is paid. Value of shares fluctuates with the fortune of
the company.

PREFERENCE SHARE

It carries Preferential rights in respect of Dividend at fixed

amount or at fixed rate i.e. dividend payable is payable on
fixed figure or percent and this dividend must paid before the
holders of the equity shares can be paid dividend.
It also carries preferential right in regard to payment of capital
on winding up or otherwise. It means the amount paid on
preference share must be paid back to preference
shareholders before anything in paid to the equity
shareholders

Preference shareholder has priority both in repayment of

dividend as well as capital.

Types of Preference Shares

1. Cumulative or Non-cumulative.

2. Redeemable and Non- Redeemable

3. Participating Preference Share or non-participating

preference shares

CUMULATIVE:

Cumulative preference shares give the right to the preference

shareholders to demand the unpaid dividend in any year
during the subsequent year or years when the profits are
available for distribution. In this case dividends which are not
paid in any year are accumulated and are paid out when the
profits are available.

NON-CUMULATIVE:

A non-cumulative or simple preference shares gives right to

fixed percentage dividend of profit of each year. In case no
dividend thereon is declared in any year because of absence of
profit, the holders of preference shares get nothing nor can
they claim unpaid dividend in the subsequent year or years in
respect of that year.

REDEEMABLE:

Redeemable Preference shares are preference shares which

have to be repaid by the company after the term of which for
which the preference shares have been issued. A company
limited by shares cannot issue preference shares which are
redeemable after more than 10 years from the date of issue. In
other words the maximum tenure of preference shares is 10
years. If a company is unable to redeem any preference shares
within the specified period, it may, with consent of the
Company Law Board, issue further redeemable preference
shares equal to redeem the old preference shares including
dividend thereon.

NON-REDEEMABLE:

Irredeemable Preference shares means preference shares need

not repaid by the company except on winding up of the
company. However, under the Indian Companies Act, a
company cannot issue irredeemable preference shares.

PARTICIPATING PREFERENCE SHARES:

Participating Preference shares are entitled to a preferential

dividend at a fixed rate with the right to participate further in
the profits either along with or after payment of certain rate of
dividend on equity shares.

NON- PARTICIPATING PREFERENCE SHARES:

A non-participating share is one which does not have right

to participate in the profits of the company after the dividend
and capital have been paid to the preference shareholders.

Sweat Equity

Sweat Equity Shares mean equity shares issued by the

company to its directors and / or employees at a discount or
for consideration other than cash. For issue these shares a
special resolution is passed at a general meeting of the
company Equity Shares are listed on a recognized stock
exchange in accordance with SEBI regulations.

DEFERRED SHARES

These shares are also known as Management shares. These

shares are usually allotted to promoters at the time of
formation of company. These shares carry voting rights and
right to retain profit left after payment of equity and
preference share.

DEBENTURE

According the sec2 (12) of the company act 1956, debentures

includes debentures stocks, bonds and any other securities of
the company whether constituting a charge on the company’s
assets or not.

A debenture is a debt instrument executed by the company for

raising the loan capital of the company. It’s like a certificate of
loan or loan bond evidencing the fact that the company is
liable to pay a specified amount with interest. Although the
money raised by the debentures becomes a part of the
company’s capital structure, it doesn’t become share capital.

TYPES OF DEBENTURES

Convertible debentures

Non-convertible debentures

CONVERTIBLE DEBENTURE
Bonds that can be converted into equity shares of the issuing
com any after a predetermined period of time. It is a special
feature that a corporate bond may carry.

NON –CONVERTIBLE DEBENTURE

These are simply regular debentures which cannot be converted into equity shares of the
liable company. They are debentures without the convertibility feature attached to them.
As a result, they usually carry higher interest rates than their convertible counterparts.

Debentures are divided into different categories on the basis

of:

(1) ON THE BASIS OF CONVERTIBILITY-

(a) Non convertible

(b) Partly convertible

(c) Fully convertible

(d) Optionally convertible

(2) ON THE BASIS OF SECURITY-

(a) Secured

(b) Unsecured

Non convertible:

These instruments retain the debt character and can not be

converted in to equity shares.

Partly convertible:

A part of these instruments are converted into Equity shares in

the future at notice of the issuer. The issuer decides the ratio
for conversion. This is normally decided at the time of
subscription.

Fully convertible:

These are fully convertible into Equity shares at the issuer's

notice. The ratio of conversion is decided by the issuer. Upon
conversion the investors enjoy the same status as ordinary
shareholders of the company.

Optionally convertible:

The investor has the option to either convert these debentures

into shares at price decided by the issuer/agreed upon at the
time of issue.

Secured:

These instruments are secured by a charge on the fixed assets

of the issuer company. So if the issuer fails on payment of
either the principal or interest amount, his assets can be sold
to repay the liability to the investors.

Unsecured:

These instrument are unsecured in the sense that if the issuer

defaults on payment of the interest or principal amount, the
investor has to be along with other unsecured creditors of the
company.

MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of

investors who share a common financial goal. The money thus
collected is then invested in capital market instruments such
as shares, debentures and other securities. The income earned
through these investments and the capital appreciations
realized are shared by its unit holders in proportion to the
number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost. The flow chart
below describes broadly the working of a mutual fund.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below

illustrates the organisational set up of a mutual fund.
TYPES OF MUTUAL FUND SCHEMES

Wide varieties of Mutual Fund Schemes exist to cater to the

needs such as financial position, risk tolerance and return
expectations etc. The table below gives an overview into the
existing types of schemes in the Industry.

ADVANTAGES OF MUTUAL FUNDS

 Professional Management

 Diversification

 Convenient Administration

 Return Potential

 Low Costs

 Liquidity

 Transparency

 Flexibility

 Choice of schemes
 Tax benefits

 Well regulated

FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the

scheme minus its liabilities. The per unit NAV is the net asset
value of the scheme divided by the number of units
outstanding on the Valuation Date

Sale Price

It is the price you pay when you invest in a scheme, also called
Offer Price. It may include a sales load.

Repurchase Price

It is the price at which units under open-ended schemes are

repurchased by the Mutual Fund. Such prices are NAV related.

Redemption Price

It is the price at which close-ended schemes redeem their units

on maturity. Such prices are NAV related.

Sales Load

It is a charge collected by a scheme when it sells the units,

also called, ‘Front-end’ load. Schemes that do not charge a
load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load

It is a charge collected by a scheme when it buys back the

units from the unit holders.

History of Indian mf industry

The mutual fund industry in India started in 1963 with the
formation of Unit Trust of India, at the initiative of the
Government of India and Reserve Bank of India. The history of
mutual funds in India can be broadly divided into four distinct
phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of

Parliament. It was set up by the Reserve Bank of India and
functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the
RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in place of RBI.
The first scheme launched by UTI was Unit Scheme 1964. At
the end of 1988 UTI had Rs.6,700 crores of assets under
management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds
set up by public sector banks and Life Insurance Corporation of
India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund
(Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December
1990.

At the end of 1993, the mutual fund industry had assets

under management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)\

With the entry of private sector funds in 1993, a new era

started in the Indian mutual fund industry, giving the Indian
investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.
 The 1993 SEBI (Mutual Fund) Regulations were substituted by
a more comprehensive and revised Mutual Fund Regulations in
1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with

many foreign mutual funds setting up funds in India and also
the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds
with total assets of Rs. 1,21,805 crores. The Unit Trust of India
with Rs.44,541 crores of assets under management was way
ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of

India Act 1963 UTI was bifurcated into two separate entities.
One is the Specified Undertaking of the Unit Trust of India with
assets under management of Rs.29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64
scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under
an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund
Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB,

BOB and LIC. It is registered with SEBI and functions under the
Mutual Fund Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than Rs.76,000 crores of
assets under management and with the setting up of a UTI
Mutual Fund, conforming to the SEBI Mutual Fund Regulations,
and with recent mergers taking place among different private
sector funds, the mutual fund industry has entered its current
phase of consolidation and growth.
TRADING IN GOLD

Of all the precious metals gold is the most popular as an

investment. Investors generally buy gold as a hedge or safe
haven against any economic, political, social or currency-based
crises. These crises include investment market declines,
currency failure, inflation, war and social unrest. Investors also
buy gold during times of a bull market in an attempt to gain
financially.

Throughout history gold has often been used as money and,

instead of quoting the gold price, all other commodities were
measured in gold. After World War II a gold standard was
established following the 1946 Bretton Woods conference,
fixing the gold price at $35 per troy ounce.

Factors influencing the gold price

Today, like all investments and commodities, the price of gold

is ultimately driven by supply and demand. Unlike most other
commodities, the hoarding and disposal plays a much bigger
role in affecting the price, because most of the gold ever
mined still exists and is potentially able to come on to the
market for the right price. Central banks and the International
Monetary Fund play an important role in the gold price.

Reasons investors buy gold

Investors generally buy gold for two main reasons:

- To financially gain from increasing gold prices, and

- As a hedge or safe haven against any economic, political,

social or currency-based crises

Methods of investing in gold

Investment in gold can be done directly through:

- Bullion or coin ownership,

Indirectly through:
- Gold exchange-traded funds, certificates, accounts, spread
betting, derivatives or shares.

UNIT LINKED INSURANCE PLAN (ULIP)

Unit Linked Insurance Plan (ULIP) provides for life insurance

where the policy value at any time varies according to the
value of the underlying assets at the time. ULIP is life
insurance solution that provides for the benefits of protection
and flexibility in investment. The investment is denoted as
units and is represented by the value that it has attained
called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many

countries in the world. The reason that is attributed to the
wide spread popularity of ULIP is because of the transparency
and the flexibility which it offers.

As times progressed the plans were also successfully mapped

along with life insurance need to retirement planning. In
today's times, ULIP provides solutions for insurance planning,
financial needs, financial planning for children’s marriage
planning also can be done with this.

Unit Linked Insurance Plan - is a financial product that offers

you life insurance as well as an investment like a mutual fund.
Part of the premium you pay goes towards the sum assured
(amount you get in a life insurance policy) and the balance will
be invested in whichever investments you desire - equity,
fixed-return or a mixture of both.

Tax benefits

The premiums paid for ULIPs are eligible for tax rebates under
section 80 which allows a maximum of Rs. 1,00,000 premiums
paid for taxable income below Rs 8,50,000 and Proceeds from
ULIPs are tax-free under section 10(10D) unlike those from a
mutual fund which attract short term capital gains tax.

Key features

Premiums paid can be single, regular or variable. The payment

period too can be regular or variable. The risk cover (insurance
cover) can be increased or decreased. As in all Insurance
policies, the risk charge (mortality rate) varies with age.
However, for an individual the risk charge is always based on
the age of the policyholder in the year of commencement of
the policy. These charges are normally deducted on a monthly
basis from the unit value. For instance, if there is an increase
in the value of units due to market conditions, the sum at risk
(sum assured less the value of investments) reduces and so
the risk charges are lower. The maturity benefit is not typically
a fixed amount and the maturity period can be advanced (early
withdrawal) or extended. Investments can be made in gilt
funds (government securities), balanced funds (part debt, part
equity), money-market funds; growth funds (equities) or
bonds.

BONDS

A bond is a fixed interest financial asset issued by

governments, companies, banks, public utilities and other
large entities. Bonds pay the bearer a fixed amount a specified
end date. A discount bond pays the bearer only at the ending
date, while a coupon bond pays the bearer a fixed amount over
a specified interval (month, year, etc.) as well as paying a
fixed amount at the end date.

Bonds, also known as fixed-income securities, are debt

instruments created for the purpose of raising capital.
Essentially loan agreements between an issuer and an
investor, the terms of a bond obligate the issuer to repay the
amount of principal at maturity. Most bonds also require that
the issuer pay the investor a specific amount of interest on a
semi-annual basis.

A debt instrument issued for a period of more than one year

with the purpose of raising capital by borrowing. Generally, a
bond is a promise to repay the principal along with interest
(coupons) on a specified date (maturity). Some bonds do not
pay interest, but all bonds require a repayment of principal.
When an investor buys a bond, he/she becomes a creditor of
the issuer. However, the buyer does not gain any kind of
ownership rights to the issuer, unlike in the case of equities.
On the hand, a bond holder has a greater claim on an issuer's
income than a shareholder in the case of financial distress. The
yield from a bond is made up of three components: coupon
interest, capital gains and interest on interest. A bond might
be sold at above or below par, but the market price will
approach par value as the bond approaches maturity. A riskier
bond has to provide a higher payout to compensate for that
additional risk. Some bonds are tax-exempt, and these are
typically issued by municipal, county or state governments,
whose interest payments are not subject to federal income tax,
and sometimes also state or local income tax.

TERMS RELATED TO BONDS

1. Bond ratings

An organization like Standard and Poor’s and Moody’s rate

the riskiness of corporate municipal, and government
issued securities and gives each security a Bond Rating. The
bond rating, or more accurately the risk, is based on two
elements: the probability the organization will file for
bankruptcy before the final bond payment is due and what
percentage of the bondholder's clams creditors will receive if a
bankruptcy takes place.

2. Discount bond

A discount bond is a bond bought at a discount, or a price less

than, its face value. The face value is the amount of money the
holder of the bond receives at the expiry date of the bond.
Unlike coupon bonds, discount bonds only pay the bearer once,
when the bond expires.

3. Coupon Bonds

A coupon bond is a bond that pays the holder of the bond a

specified amount of money at given dates until maturity. Then
the face value of the bond is paid at maturity. The total value
of the coupons in a year, over the face value of the bond, is
called the coupon rate.
TYPES OF BONDS

1. ASSET-BACKED SECURITIES

Asset-backed securities are bonds that are based on

underlying pools of assets. A

Special purpose trust or instrument is set up which takes title

to the assets and the cash flows are "passed through" to the
investors in the form of an asset-backed security. The types of
assets that can be "securitized" range from residential
mortgages to credit card receivables.

2. CONVERTIBLE BOND

A convertible bond is a bond that gives the holder the right to

"convert" or exchange the par amount of the bond for common
shares of the issuer at some fixed ratio during a particular
period. As bonds, they have some characteristics of fixed
income securities. Their conversion feature also gives them
features of equity securities.

3. HIGH YIELD/JUNKBOND

A high yield, or "junk", bond is a bond issued by a company

that is considered to be a higher credit risk. The credit rating
of a high yield bond is considered "speculative. Grade or below
"investment grade". This means that the chance of default
with high yield bonds is higher than for other bonds. Their
higher credit risk means that "junk" bond yields are higher
than bonds of better credit quality

4. CORPORATE BONDS

Corporate bonds are fully taxable debt instruments issued by

private corporations rather than government entities.
Corporate bonds usually pay a higher rate of interest than
government bonds, and are most often issued with a par value
of $1,000.Corporate bonds are traded on the major exchanges.

5. INFLATION-LINKED BOND

An inflation-linked bond is a bond that provides protection

against INFLATION. In most countries, the Consumer Price
Index (CPI) or its equivalent is used as an inflation proxy. As
the principal amount increases with inflation, the interest rate
is applied to this increased amount.

6. EXTENDIBLE / RETRACTABLE BONDS

Extendible and retractable bonds have more than one

maturity date. An extendible bond gives its holder the right to
extend the initial maturity to a longer maturity date. A
retractable bond gives its holder the right to advance the
return of principal to an earlier date than the original maturity.
Investors use extendible/retractable bonds to modify the term
of their portfolio to take advantage of movements in interest
rates. The characteristics of these bonds are a combination of
their underlying terms. When interest rates are rising,
extendible/retractable bonds act like bonds with their shorter
terms when interest rates fall, they act like bonds with their
longer terms.

7. MORTGAGE-BACKED SECURITY

A mortgage-backed security (MBS) is a security that is based

on a pool of underlying mortgages. MBS are usually based on
mortgages that are guaranteed by a government agency for
payment of principal and a guarantee of timely payment. The
analysis of MBS concentrates on the nature of the underlying
payment stream, particularly the prepayments of principal
prior to maturity.
8. FOREIGN CURRENCY BOND

A "foreign currency" bond is a bond that is issued by an issuer

in a currency other than its national currency. Issuers make
bond issues in foreign currencies to make them more
attractive to buyers and to take advantage of international
interest rate differentials. Foreign currency bonds can
"swapped" or converted in the swap market into the home
currency of the issuer.

9. ZERO COUPON / STRIP BOND

Zero coupon or strip bonds are fixed income securities that are
created from the cash flows that make up a normal bond. A
zero coupon bond is a corporate bond that makes no periodic
interest payments, but is sold at a deep discount from face
value

10. GOVERNMENT BOND

A government bond is a bond issued by a national government

denominated in the country's own currency. Bonds issued by
national governments in foreign currencies are normally
referred to as sovereign bonds. Government bonds are usually
referred to as risk-free bonds, because the government can
raise taxes to redeem the bond at maturity.

11. EURO BOND

Eurobond is an international bond that is denominated in a

currency not native to the country where it is issued. It can be
categorized according to the currency in which it is issued.
London is one of the centers of the Eurobond market, but
Eurobonds may be traded throughout the world.
 FACTOR ANALYSIS

Factor analysis is a technique that is used to reduce a large

number of variables into fewer numbers of factors. Factor
analysis extracts maximum common variance from all variables
and puts them into a common score.

As an index of all variables, we can use this score for further

analysis. Factor analysis is part of general linear model
(GLM) and this method also assumes several assumptions:
there is linear relationship, there is no multicollinearity it
includes relevant variables into analysis, and there is true
correlation between variables and factors.

Several types of factor analysis methods are available, but

principle component analysis is used most commonly.

It’s a statistical method used to describe variability among

observed and unobserved variables.Unobserved variables are
called factors.It deals with the large quantities of
data.Observed variables are independent variables and
unobserved ara called dependent variables.

USE OF FACTOR ANALYSIS:-

(1).Behavioural sciences: our survey is based on it.

(2).Product management:-

(a).Defining new products

(b).Gathering market requirements

(c).Monitoring the competition

(d).Product differentiation

(3).Operations research:-

(a).To check the availability of stock

(b).To check the productivity

(4).Others:-

(a).Physical sciences:-In ground water quality management.

THE OBJECTIVE OF THE STUDY:-

(1).TO FIND OUT THE FACTOR WHICH INFLUENCE THE

INDIVIDUAL’S DECISION WHILE INVESTING.

(2).TO REDUCE THE NO. OF VARIABLES AND DESCRIBE

INTERRELATION BETWEEN TWO VARIABLES.

(3).What is the % of variance in the data accounted for by the

factors?

(4).What would each subjects score be if they could be

measured directly on the factors. For example, if we study on
our selected 3 factors separately then what would be the
result or if study by taking one variable from each factor then
what would be the result ?

ASSUMPTION OF FACTOR ANALYSIS

1. No outlier: Factor analyses assume that there is no

outlier in data.

2. Adequate sample size: In factor analysis, the case must

be greater than the factor.

3. No perfect multicollinearity: Factor analysis is an

interdependency technique. There should not be perfect
multicollinearity between the variables.

4. Homoscedasticity: Since factor analysis is a linear

function of measured variables, it does not require
homoscedasticity between the variables.

5. Linearity: Factor analysis is also based on linearity

assumption. Non-linear variables can also be used. After
transfer, however, it changes into linear variable.
 6. Interval Data: Interval data are assumed for factor
analysis.

Advantages

Reduction of number of variables by combining two or more

variables into a single factor

For example performance at running, ball throwing, batting,

jumping could be combined

Into a single factor such as “General athletics ability”.

Identification of group of inter-related variables to see how

they are related to each

other. For example- how our survey questions are related to

each other

Easy identification of the hidden dimensions .

Flexibility in naming the factors.

TYPE OF FACTOR ANALYSIS:

Exploratory Factor Analysis

Confirmatory Factor Analysis

Exploratory Factor Analysis

Exploratory factor analysis assumes that any indictor or variable may be

associated with any factor. This is the most common factor analysis used by
researchers and it is not based on any prior theory.

Objectives:

The number of common factors influencing a set of

measures
The strength of the relationship between each factor and
each observed measure.

Seven basic steps to performing an EFA:

Collect measurements
↓
Obtain the correlation matrix
↓
Select the number of factors for inclusion
 ↓
Extract your initial set of factors
↓
Rotate your factors to a final solution
↓
Interpret factor structure
↓
Construct factor scores for further analysis

Collect measurements:

We need to measure the variables on the same experimental

units.

Obtain the correlation matrix:

We need to obtain the correlations between each of

variables.

Select the number of factors for inclusion:

Extract your initial set of factors:

We must submit our correlations or co variances into a

computer program to extract our factors. There are a
number of different extraction methods, including maximum
likelihood, principal component and principal axis extraction.
The best method is generally maximum likelihood extraction.

Rotate your factors to a final solution:

For any given set of correlations and number of factors there

are an infinite number of ways that can define factors and
still account for the same amount of covariance in measures.
Some of these definitions are easier to interpret theoretically
than others. By rotating factors we attempt to find a factor
solution that is equal to that obtained in the initial extraction
but which has the simplest interpretation.

Interpret factor structure:

Each of measures will be linearly related to each factor. The

strength of this relationship is contained in the respective
factor loading, produced by rotation. This loading can be
interpreted as a standardized regression coefficient,
regressing the factor on the measures.

Construct factor scores for further analysis:

If we wish to perform additional analyses using the factors as

variables we will need to construct factor scores. The score
for a given factor is a linear combination of all of the
measures, weighted by the corresponding factor loading.

Confirmatory Factor Analysis

Confirmatory factor analysis is used to determine the factor and factor

loading of measured variables. Confirmatory factor analysis assumes that
each factor is associated with a specified subset of measured variables.

CFA commonly uses two approaches:

The traditional method:

Traditional factor method is based on principle factor analysis method rather
than common factor analysis. Traditional method allows the researcher to
know more about insight factor loading.
2. The SEM approach:
In SEM factor analysis, we will remove all straight arrows from the latent
variable, and add only that arrow which has to observe the variable
representing the covariance between every pair of latent.
Objectives
CFA is to determine the ability of a predefined factor model to fit an
observed set of data.

Six basic steps to performing a CFA:

Define the factor model

↓
Collect measurements
↓
Obtain the correlation matrix
↓
Fit the model to the data
↓
Evaluate model adequacy
↓
Compare with other models

Define the factor model.

In this we define the model which we want to test. This
involves selecting the number of factors, and defining the
nature of the loadings between the factors and the
measures.

Collect measurements
In this we need to measure the variables on the same
experimental units.

Obtain the correlation matrix.

We need to obtain the correlations between each variable.

Fit the model to the data

We need to choose a method to obtain the estimates
of factor loadings that were free to vary. Maximum
likelihood is the most common model fitting
procedure.

Evaluate model adequacy.

When above model fit to data then the factor loadings are
chosen to minimize the discrepancy between the correlation
matrix implied by the model and the actual observed matrix.
The most commonly used test of model adequacy is the
goodness-of fit test.

Compare with other models

If we want to compare two models, one of which is a reduced form of the
other, we can just examine the difference between their statistics.

Combining Exploratory and

Confirmatory Factor Analyses

In general, we want to use EFA if we do not have strong

theory about the constructs underlying responses to our
measures and CFA if we do.

It is reasonable to use an EFA to generate a theory about the

constructs underlying our measures and then follow this up
with a CFA, but this must be done using separate data sets.

If we perform a CFA and get a significant lack of fit, it is

perfectly acceptable to follow this up with an EFA to try to
locate inconsistencies between the data and our model.

Some Examples of Factor-Analysis Problems

1. Factor analysis was invented nearly 100 years ago by
psychologist Charles Spearman, who hypothesized that the
enormous variety of tests of mental ability--measures of
mathematical skill, vocabulary, other verbal skills, artistic
skills, logical reasoning ability, etc.--could all be explained by
one underlying "factor" of general intelligence that he called g.
He hypothesized that if g could be measured and you could
select a subpopulation of people with the same score on g, in
that subpopulation you would find no correlations among any
tests of mental ability. In other words, he hypothesized that g
was the only factor common to all those measures.

It was an interesting idea, but it turned out to be wrong. Today

the College Board testing service operates a system based on
the idea that there are at least three important factors of
mental ability--verbal, mathematical, and logical abilities--and
most psychologists agree that many other factors could be
identified as well.

2. Consider various measures of the activity of the autonomic

nervous system--heart rate, blood pressure, etc. Psychologists
have wanted to know whether, except for random fluctuation,
all those measures move up and down together--the
"activation" hypothesis. Or do groups of autonomic measures
move up and down together, but separate from other groups?
Or are all the measures largely independent? An unpublished
analysis of mine found that in one data set, at any rate, the
data fitted the activation hypothesis quite well.

3. Suppose many species of animal (rats, mice, birds, frogs,

etc.) are trained that food will appear at a certain spot
whenever a noise--any kind of noise--comes from that spot.
You could then tell whether they could detect a particular
sound by seeing whether they turn in that direction when the
sound appears. Then if you studied many sounds and many
species, you might want to know on how many different
dimensions of hearing acuity the species vary. One hypothesis
would be that they vary on just three dimensions--the ability to
detect high-frequency sounds, ability to detect low-frequency
sounds, and ability to detect intermediate sounds. On the
other hand, species might differ in their auditory capabilities
on more than just these three dimensions. For instance, some
species might be better at detecting sharp click-like sounds
while others are better at detecting continuous hiss-like
sounds.
4. Suppose each of 500 people, who are all familiar with
different kinds of automobiles, rates each of 20 automobile
models on the question, "How much would you like to own that
kind of automobile?" We could usefully ask about the number
of dimensions on which the ratings differ. A one-factor theory
would posit that people simply give the highest ratings to the
most expensive models. A two-factor theory would posit that
some people are most attracted to sporty models while others
are most attracted to luxurious models. Three-factor and four-
factor theories might add safety and reliability. Or instead of
automobiles you might choose to study attitudes concerning
foods, political policies, political candidates, or many other
kinds of objects.

ANALYSIS

In SPSS the path of factor analysis is ANALYZE→DATA REDUCTION

→ FACTOR. Simply select the variables you want to include in the analysis
and transfer them to the box labeled VARIABLES.
FACTOR EXTRACTION ON SPSS
We click on extraction and then exraction dialog box appears.there are
several methods of conducting factor analysis & the choice of factor depends
upon many things. We have used principal component method in our study
The EXTRACT BOX provides options pertaining to the retention of factors.
We have the choice of either selecting factors with eigen values greater than
the user specified value or retaining a fixed number of factors.
.
FACTOR ROTATION
The interpretability of factors can be increased by factor rotation. Rotation
maximizes the loading of each variable of one of the extracted factors while
minimizing the loading on all other factors.rotation works through changing
the absolute value of variables while keeping their differential value
constant.
Varimax ,quartimax & equamax are orthogonal rotations.wheareas direct
oblimin and promax are oblique rotations. The exact choice of rotation
depends largely on wheyther or not you think that the underlying factors
should be related. If you expect the factors to be independent then you
should choose one of the orthogonal rotations.

SCORES
The factor scores dialog box can be accessed by clicking SCORES in the
main dialog box. This option allows you to save factor scores for each
subject in the data editor. SPSS creates a new column for each factor
extracted and then places the factor scores for each subject within that
column.these scores can then be used for further analysis.
General steps to factor analysis

Step 1: Selecting and Measuring a set of variables in a given

domain

Step 2: Data screening in order to prepare the correlation

matrix

Step 3: Factor Extraction

Step 4: Factor Rotation to increase interpretability

Step 5: Interpretation

RESEARCH METHODOLOGY

Is defined as a highly intellectual human activity used in the

investigation of nature and matter and deals specifically with
the manner in which data is collected, analyzed and
interpreted.

We have used 7 point likert scale,

Where:

1 = strongly disagree

2 = strongly agree

QUESTIONNAIRE

QUESTIONNAIRE FOR INVESTER’S SURVEY

1) Age group
(a) 18-24 (b) 25-30 (c) 30-35 (d) 36-40 (e) 41& above
2) Income slab
(a) Upto 3 lakh (b) Rs 3- 6 lakh (c) Rs 6-8lakh (d)Rs 8lakh & above

3) Saving as percentage of total income

(a) None (b) Upto 10 (c) 10-25% (d) 25-40% (e) 40% & above

4) Do you invest in stock market?

(a) Yes (b) No

Please tick mark ( ) appreciate choice

QUESTIONS 1 2 3 4 5 6 7
1. How much you consider time factor before investing.

2 .How much do you invest on the basis of return on investment

3. How much do you consider the liquidity of the investment

4. How will you rate your investing experience

5 .How much do you invest on the basis of growth of the

company
6 .How much you consider tax factor before investing.

7. How do you rate market trend while investing.

8. How much do you consider the quality of management of the

company.
9. Rating of the competitive strength of the company.

10. How do you rate the past track record of the company.

11.How much will you rate the organization in which you are
investing on the basis of CORPORATE GOVERNANCE
12. How much your decision is affected by recession.

13.How much brand image of the company affect your decision

14. How much role your profession play in investing

15. How much do you rate the influence of the family on your
investment decision
16. How much do you rate the influence of published
information on your investment decision
17. How much do you rate the influence of intuition on your
 investment decision
18 How much do you rate the influence of broker on your
investment decision
19. How do you rate risk factor for investing

20.How do you rate knowledge of the market for investing

21. How much lack of resources influence your investment

decision
22. How much is decision of investing is affected by workload

23. How much past experience influence your investment

decision
24. How much the physical surroundings influence your decision
in not investing
25.How much your willingness of investing is converted into
non willingness by others suggestions
26. Stock market is too risky

27.Investment into stock market is like gambling

28. No one can make profit in stock market except those who are
lucky.
29. How much your decision is affected by portfolio manager...

30. How is your overall experience of investing.

Parameter rating…
1=strongly disagree
7=strongly agree

Examine the differences between qualitative and

quantitative data.
Qualitative Data Quantitative Data
Overview: Overview:
Deals with descriptions. Deals with numbers.
Data can be observed but not measured.
Colors, textures, smells, tastes, appearance,
beauty, etc.
Qualitative → Quality
Data which can be measured.
Length, height, area, volume, weight, speed,
time, temperature, humidity, sound levels, cost,
members, ages, etc.
Quantitative → Quantity

Example 1: Example 1:
Oil Painting Oil Painting

Qualitative data: Quantitative data:

blue/green color, gold frame picture is 10" by 14"
smells old and musty with frame 14" by 18"
texture shows brush strokes of oil paint weighs 8.5 pounds
peaceful scene of the country Surface area of painting is 140 sq. in.
masterful brush strokes cost $300

Example 2: Example 2:
Latte Latte

Qualitative data: Quantitative data:

robust aroma 12 ounces of latte
frothy appearance serving temperature 150º F.
strong taste serving cup 7 inches in height
burgundy cup cost $4.95

Example 3: Example 3:
Freshman Freshman
Class Class

Qualitative data: Quantitative data:

friendly demeanors 672 students
civic minded 394 girls, 278 boys
environmentalists 68% on honor roll
Positive school spirit 150 students accelerated in mathematics
DATA SOURCES

PRIMARY DATA

In primary data collection, you collect the data yourself using

methods such as interviews and questionnaires. The key point
here is that the data you collect is unique to you and your
research and, until you publish, no one else has access to it.

METHODS

There are many methods of collecting primary data and the

main methods include:

questionnaires

interviews

focus group interviews

observation

case-studies

diaries
critical incidents

The primary data, which is generated by the above methods,

may be qualitative in nature (usually in the form of words) or
quantitative (usually in the form of numbers or where you can
make counts of words used). We briefly outline these methods
but you should also read around the various methods. A list of
suggested research methodology texts is given in your Module
Study Guide but many texts on social or educational research
may also be useful and you can find them in your library.

Questionnaires

Questionnaires are a popular means of collecting data, but are

difficult to design and often require many rewrites before an
acceptable questionnaire is produced.

ADVANTAGES

Can be used as a method in its own right or as a basis for

interviewing or a telephone survey.

Can be posted, e-mailed or faxed.

Can cover a large number of people or organisations.

Wide geographic coverage.

Relatively cheap.

No prior arrangements are needed.

Avoids embarrassment on the part of the respondent.

Respondent can consider responses.

Possible anonymity of respondent.

No interviewer bias.

Disadvantages:

Design problems.

Questions have to be relatively simple.

Historically low response rate (although inducements may

help).

Time delay whilst waiting for responses to be returned.

Require a return deadline.

Several reminders may be required.

Assumes no literacy problems.

No control over who completes it.

Not possible to give assistance if required.

Problems with inc

omplete questionnaires.

Replies not spontaneous and independent of each other

PRIMARY & SECONDARY DATA – WHAT’S THE DIFFERENCE?

Primary research entails the use of immediate data in

determining the survival of the market. The popular ways to
collect primary data consist of surveys, interviews and focus
groups, which shows that direct relationship between potential
customers and the companies. Whereas secondary research is
a means to reprocess and reuse collected information as an
indication for betterments of the service or product. Both
primary and secondary data are useful for businesses but both
may differ from each other in various aspects.

In secondary data, information relates to a past period. Hence,

it lacks aptness and therefore, it has unsatisfactory value.
Primary data is more accommodating as it shows latest
information.

Secondary data is obtained from some other organization than

the one instantaneously interested with current research
project. Secondary data was collected and analyzed by the
organization to convene the requirements of various research
objectives. Primary data is accumulated by the researcher
particularly to meet up the research objective of the subsisting
project.

Secondary data though old may be the only possible source of

the desired data on the subjects, which cannot have primary
data at all. For example, survey reports or secret records
already collected by a business group can offer information
that cannot be obtained from original sources.

Firm in which secondary data are accumulated and delivered

may not accommodate the exact needs and particular
requirements of the current research study. Many a time,
alteration or modifications to the exact needs of the
investigator may not be sufficient. To that amount usefulness
of secondary data will be lost. Primary data is completely
tailor-made and there is no problem of adjustments.

Secondary data is available effortlessly, rapidly and

inexpensively. Primary data takes a lot of time and the unit
cost of such data is relatively high.
OUTPUT TO FACTOR ANALYSIS:-
KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy. .799

Bartlett's Test of Approx. Chi-Square 3358.860

Sphericity df 435
Sig. .000

Factor Analysis
Communalities

Initial Extraction
VAR00001 1.000 .563
VAR00002 1.000 .682
VAR00003 1.000 .693
VAR00004 1.000 .656
VAR00005 1.000 .624
VAR00006 1.000 .585
VAR00007 1.000 .503
VAR00008 1.000 .659
VAR00009 1.000 .731
VAR00010 1.000 .599
VAR00011 1.000 .635
VAR00012 1.000 .631
VAR00013 1.000 .595
VAR00014 1.000 .774
VAR00015 1.000 .831
VAR00016 1.000 .538
VAR00017 1.000 .710
VAR00018 1.000 .590
VAR00019 1.000 .561
VAR00020 1.000 .607
VAR00021 1.000 .587
VAR00022 1.000 .663
VAR00023 1.000 .590
VAR00024 1.000 .754
VAR00025 1.000 .699
VAR00026 1.000 .732
VAR00027 1.000 .692
VAR00028 1.000 .694
VAR00029 1.000 .704
VAR00030 1.000 .541
 Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings
Component Total % of Variance Cumulative % Total % of Variance Cumulative % Total % of Variance Cumulative %
1 6.551 Component 21.836 6.551 21.836 21.836 3.122 10.408 10.408
2 2.887 9.625 31.461 2.887 9.625 31.461 2.760 9.199 19.607
3 2.084 6.946 38.406 2.084 6.946 38.406 2.538 8.460 28.066
4 1.639 5.464 43.870 1.639 5.464 43.870 2.535 8.452 36.518
5 1.566 5.219 49.090 1.566 5.219 49.090 1.855 6.183 42.701
6 1.383 4.610 53.700 1.383 4.610 53.700 1.827 6.091 48.792
7 1.236 4.121 57.821 1.236 4.121 57.821 1.823 6.078 54.869
8 1.071 3.569 61.389 1.071 3.569 61.389 1.664 5.547 60.417
9 1.007 3.358 64.747 3.358 64.747 1.299 4.330 64.747
10 .926 3.088 67.835
11 .783 2.610 70.445
12 .757 2.523 72.968
13 .700 2.334 75.302
14 .684 2.280 77.582
15 .672 2.241 79.822
16 .636 2.120 81.942
17 .578 1.927 83.869
18 .524 1.746 85.615
19 .514 1.712 87.327
20 .451 1.502 88.830
21 .444 1.481 90.311
22 .438 1.461 91.772
23 .407 1.358 93.129
24 .374 1.248 94.377
25 .322 1.074 95.451
26 .316 1.052 96.503
27 .303 1.010 97.512
28 .269 .896 98.408
29 .253 .842 99.250
30 .225 .750 100.000
 Extraction Method: Principal Component Analysis.

Rotated Component Matrix(a)

Component
1 2 3 4 5 6 7 8 9
VAR00009 .782 .110 .105 .232 -.123 .063 -.053 .129 -.072
VAR00008 .732 .226 .222 -.081 -.054 .007 .042 .081 .068
VAR00010 .690 .130 -.027 .233 .160 .090 .066 .023 .115
VAR00011 .627 .026 .240 -.252 .177 .141 .254 -.069 .021
VAR00007 .436 .416 .287 .142 -.146 -.020 .022 .126 .015
VAR00003 .118 .775 .022 .180 .027 .066 -.095 .094 -.148
VAR00002 .033 .699 .000 .266 .102 .024 .219 -.002 .250
VAR00001 .140 .689 .030 .074 -.133 .079 .158 .111 .016
VAR00005 .238 .644 .027 .001 .236 .069 .176 -.077 .233
VAR00017 .175 -.014 .779 -.029 .116 .154 .034 .121 .137
VAR00018 .211 .057 .659 .055 .008 .256 .006 -.031 -.196
VAR00026 .210 .092 -.525 .450 .402 .090 .004 .173 -.040
VAR00016 .183 .195 .479 .187 .000 .058 .296 .297 -.149
VAR00013 .132 .159 .201 .650 .172 -.012 -.075 -.033 .231
VAR00012 -.030 .157 -.215 .625 -.032 .076 .292 .202 -.190
VAR00019 .094 .247 .142 .586 .327 -.018 -.110 .087 -.021
VAR00006 -.031 .440 .080 .534 -.141 .250 .080 -.095 -.035
VAR00023 .282 .030 -.129 .459 .010 .446 .068 .187 .208
VAR00030 .365 -.012 .077 .383 -.231 .184 .285 .071 .286
VAR00028 -.043 -.068 .190 -.079 .761 .233 -.005 .085 .068
VAR00027 -.003 .056 -.140 .309 .745 -.066 .033 .009 -.115
VAR00025 .089 .153 .110 .015 .344 .724 .100 .050 .026
VAR00022 .051 .088 .302 .100 -.068 .717 -.096 .090 -.123
VAR00014 .025 .186 -.004 -.026 .013 -.015 .851 .064 -.093
VAR00021 .194 .160 .454 .112 .042 -.096 .525 .024 .131
VAR00020 .238 .080 .413 .154 -.013 .324 .441 -.097 .201
VAR00015 -.014 .097 .050 .068 .125 -.079 .176 .872 -.029
VAR00024 .208 .023 .064 .081 -.019 .345 -.154 .746 .002
VAR00004 .359 .232 .113 .138 -.100 .037 .077 -.096 .644
VAR00029 .390 -.003 .313 .088 -.058 .200 .276 -.055 -.569
 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
a Rotation converged in 16 iterations.

Component Transformation Matrix

Component 1 2 3 4 5 6 7 8 9
1 .547 .468 .344 .391 .094 .296 .273 .178 .090
2 -.265 .312 -.634 .554 .292 -.085 -.111 .133 .050
3 -.100 -.436 .166 .063 .549 .463 -.203 .377 -.262
4 -.592 .318 .311 -.138 .344 -.036 .520 -.168 -.124
5 .262 -.063 -.023 -.119 .597 -.035 -.157 -.575 .446
6 .360 -.208 -.272 -.225 .293 -.469 .506 .361 -.101
7 -.027 -.549 -.075 .511 -.170 .155 .489 -.373 .002
8 -.264 -.162 .130 .002 -.079 .009 .110 .423 .830
9 .038 .132 -.509 -.437 -.089 .667 .265 -.028 .082
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

Component Plot in Rotated Space

1.0
VAR00003
VAR00002
VAR00001 VAR00005
VAR00006
0.5
VAR00014 VAR00004
VAR00012 VAR00009
0.0 VAR00015 VAR00010
VAR00011
VAR00017
m
C

-0.5
t2
e
n
p
o

-1.0
-1.0
-1.0 -0.5
-0.5 0.0 0.0
0.5 0.5
Comp 1.0 1.0 3
onent onent
1 Comp
 SOME TERMINOLOGIES RELATED TO FACTOR ANALYSIS

CORRELATION COEFFICIENT MATRIX

Is is the matrix of correlation coefficients of the original
observations between pairs of input variables

FACTOR LOADINGS, Li (j)

It is a matrix representing the correlation between different
combinations of variables and factors. Li (j) is the factor
loading of the variable j on the factor I, where i=1, 2, 3, 4,………
n and
j=1, 2, 3,………, n

• Factor loadings: The factor loadings, also called

component loadings in PCA, are the correlation
coefficients between the variables (rows) and factors
(columns).
• Analogous to Pearson's r, the squared factor loading is
the percent of variance in that variable explained by the
factor.
• To get the percent of variance in all the variables
accounted for by each factor, add the sum of the squared
factor loadings for that factor (column) and divide by the
number of variables.
• (Note the number of variables equals the sum of their
variances as the variance of a standardized variable is 1.)
This is the same as dividing the factor's eigenvalue by the
number of variables.
COMMUNALITY, hi²
It is the sum of squares of the factor loadings of the variable i
on all factors
• hi²= Σ L²ij.
• The communality measures the percent of variance in a given variable

explained by all the factors jointly and may be interpreted as the

reliability of the indicator.

EIGEN VALUE, j
It is the sum of squares of the factor loadings of all variables
on a factor.
j= Σ L²ij
THE SUM OF THE EIGEN VALUES OF ALL FACTORS (IF NO
FACTOR IS DROPPED) IS EQUAL TO THE SUM OF ALL THE
COMMUNALITIES OF ALL VARIABLES.

Eigenvalues shows variance explained by that particular factor

out of the total variance

PRINCIPAL COMPONENT ANALYSIS: EXTRACTION METHOD

It creates as many factors as there are original variables. The
first factor takes into account the greater amount of variance
between variables giving the weightage of these variables to
form a single factor & so on.

VARIMAX ROTATION
It is often used in surveys to see how grouping of questions
measure A typical factor analysis suggests answers to four
major questions:

1. How many different factors are needed to explain the

pattern of relationships among these variables?
2. What is the nature of those factors?
3. How well do the hypothesized factors explain the
observed data?

How much purely random or unique variance does each

observed variable include? Varimax rotation is a change of
coordinates used in principal component analysis that
maximizes the sum of the variance of the squared loadings.
That is, it seeks a basis such that most economically
represents each individual—that each individual can be well
described by a linear combination of only a few basis
functions:

where γ=1 for VARIMAX.

Suggested by Henry Felix Kaiser in 1958, it is a popular

scheme for orthogonal rotation which cleans up the factors as
follows: "for each factor, high loadings (correlations) will result
for a few variables; the rest will be near zero."

Varimax rotation is often used in surveys to see how groupings

of questions (items) measure the same concept.

4.

Criteria for determining the number of factors: According to

the Kaiser Criterion, Eigenvalues is a good criteria for
determining a factor. If Eigenvalues is greater than one, we
should consider that a factor and if Eigenvalues is less than
one, then we should not consider that a factor. According to
the variance extraction rule, it should be more than 0.7. If
variance is less than 0.7, then we should not consider that a
factor.

A number of relations exist among output values. Many people

feel these relationships help them understand their output
better. Others are just compulsive, and like to use these
relations to confirm that gremlins have not attacked their
computer program. The major relationships are the following:

1. Sum of eigenvalues = p
if the input matrix was a correlation matrix

Sum of eigenvalues = sum of input variances

if the input matrix was a covariance matrix

2. Proportion of variance explained = eigenvalue / sum of

eigenvalues
3. Sum of squared factor loadings for jth principal component
= eigenvaluej

4. Sum of squared factor loadings for variable i

= variance explained in variable i
= Cii (diagonal entry i in matrix C)
= communality in common factor analysis
= variance of variable i if m = p

5. Sum of cross products between columns i and j of factor

loading matrix
= Cij (entry ij in matrix C)

6. The relations in #3, #4 and #5 are still true after rotation.

7. R - C = U. If necessary, rule 4 can be used to find the

diagonal entries in C, then rule 7 can be used to find the
diagonal entries in U

CONCLUSION:-

According to the initial eigen values which is given in Total Variance

Explained table we selected 9 factors which have eigen values more than 1.

 1=6.551
 2=2.887
 3=2.084
 4=1.639
 5=1.566
 6=1.383
 7=1.236
 8=1.071
 9=1.007

In Rotated Component Matrix table 30 variables are distributed in 9 factors,

according to their weightage. All the variables which have values 0.5 or
more than 0.5 (loading values) becomes the part of that particular factor in
which they have these values.
Now
 FACTOR 1 - VARIABLE 9 - .782
 VARIABLE 8 - .732
 VARIABLE 10 - .690
 VARIABLE 11 - .627
 FACTOR 2 - VARIABLE 3 - .775
 VARIABLE 2 - .699
 VARIABLE 1 - .689
 VARIABLE 5 - .644
 FACTOR 3 – VARIABLE 17 - .779
 VARIABLE 18 - .659
 FACTOR 4 - VARIABLE 13 - .650
 VARIABLE 12 - .625
 VARIABLE 19 - .586
 VARIABLE 6 - .534
 FACTOR 5 – VARIABLE 28 - .761
 VARIABLE 27 - .745
 FACTOR 6 – VARIABLE 25 - .724
 VARIABLE 22 - .717
 FACTOR 7 – VARIABLE 14 - .851
 VARIABLE 21 - .525
 FACTOR 8 – VARIABLE 15 - .872
 VARIABLE 24 - .746
 FACTOR 9 – VARIABLE 4 - .644

If we want to study in survey and if we take these factor than we

should consider the “sample i.e.
Where we survey & time point whether it’s a boom on recession.

Now from these factors we choosed only those factors which have
more than 3 varibles,i.e. factor 1,2 and 4.On the basis of the
characteristics of the variable we named them as company
performance,security and economic factor.Now the objective of the
study to find out factors which influence the individual’s decision
when they invest in the market.