Perception : What are the three stages of perception?

Introduction to Perception

Perception is defined as a set of processes used by humans to make sense of all the stimuli that we face. It is basically an interpretation about the situation we are in and it can range from the smell of the garden you are in to the sight of beautiful birds flying up in the sky. It all depends on how we interpret all these different sensations. These senses are nothing but sensory impressions we get from the stimuli in the world around us. It is perception which enables us and gives us the ability to navigate the world. It helps make decisions about everything, from which T-shirt to wear, which restaurant to go to or how fast to run away from a tiger.

Suppose we close your eyes. The thoughts that run in your mind are nothing but accumulation of data. And in this data, majority of it is perception. The things you see, smell, hear and feel and you make sense out of it and this process of using your stimuli and getting an impression and making an interpretation is perception. It is an unconscious process which keeps happening as and when we come across a stimuli.

The Perception Process

This process of perception is such that it always begins with a stimulus which happens every second around us and then it ends with what we interpret from that stimulus. The very amazing thing about it is that it is an unconscious process which happens at a subtle level thousand times a day and we don’t even realize it. Now one may ask what an unconscious process is, so to make it clear an unconscious process is simply one that happens without awareness or intention.
For example, the brain need not be told that it is hungry, or it is cold outside.

What are the Stages involved in Perception process ?

Perception has three stages, namely selection, organization and interpretation. We will see each of the following in detail.

Selection

Selection comes into the picture when there are many things and we can’t take in so much as the capacity of the brain is less therefore, we have to select the stimuli. That was in layman words. Talking about perception, the world that we live in is filled with an infinite number of stimuli that we might attend to, but our brains do not have the resources to pay attention to everything. So, our first step is Selection which means selecting what we would like to attend to. This is usually unconscious, but sometimes intentional decision. The stimuli that we select , it may be smell, sight, voice , touch or any sense perception, that becomes an attended stimuli. This is selection, the very first process of what we call as perception.

Organization

The choice that we make sets off a series of reactions in our brain once we have chosen to attend to a stimulus in the environment. This might be unconscious but most of the time its conscious. The process of the nerves is called the neural process and it starts with the activation of our sensory receptors. These receptors are nothing but touch, taste, smell, sight, and hearing. After the activation, the receptor transforms the energy into an activity which after being tr transmitted to our brains, becomes a mental represented created by us. This representation is called as precept. At a single point in time, we can create multiple precepts.

Interpretation

The last stage is of interpretation which happens after we have attended to a stimulus. After the organization of the information that our brain has received we interpret it in a way that makes sense using our existing information about the world. And then we turn it to something we can analyze and understand. This happens unconsciously thousands of times a day.
Thus, to conclude in a simple and apt way we can say that perception is organizing, identifying and then interpreting the information we get from the various stimuli and then represent and understand the world around.

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What is market positioning? Strategies, Significance

Once the list of target markets is made, the next step is to position the products in such a way that the target audience can connect with it Read More about - What is Market Segmentation? Basis, Types & Examples) . This can be done through a good marketing mix. Therefore, a decision has to be taken as to how to create an identity or image of the product in the mind of the customer. We know that every segment is different from the others. This thus, makes the expectations of different customers with different ideas come into picture and a proper understanding of this will help the marketers.

The process of positioning a product in a market includes:
1. Identifying the differential advantages that are unique to each segment
2. Finding the different positioning concept for each of these segments.

This process is nothing but positioning . In simple terms, we can say that positioning is one of the STP’S, a marketing strategy that ails to create an image for the brand.

Once we have targeted the various segments, now comes the role of positioning. We need to understand the very aspects of each segment and using the marketing mix, use techniques such that the brand image is created in the minds of the consumers of the various segments. It can be done with the attributes and special features of the product or the umbrella brand under which the product is introduced. Once the product is positioned based on the marketers plan and expectation, the base of the market is set and the product is ready to do well in the industry.

Talking about positioning, it is all about how the message about the product is delivered to the consumers . The message and its communication is essential because the potential consumers will decide whether to buy or not. The message has to be communicated aptly which will include everything about the product as in where you sell your product, how you make it, where you make it and your price. This all should be done without your using any overt advertising, public relations or promotions.

Considerations and divisions in positioning strategy:

Specific Demographic:

You may not appeal to any group if you try to be everything to everyone.
For example, the deodorant called Carolina Herrera markets itself only for women. It might lose sales in the men part, but the market share is increased as by getting more women to buy this deodorant than other brands. Therefore, to build that trust you need to target a specific demography.

Low-Price Strategy:

Companies can never increase their market share if they target the elite classes through their premium products. They should have a strategy called as low price strategy which will ensure all the consumers can afford it and it gains the favor of price conscious consumers. For example in India, companies know that the Indian customers are very price sensitive, so when they market in India, they make sure the price is affordable. This strategy can gain favor from all the customers in the area and hence increase the share.

High-Price Strategy:

Some companies price their products higher than their competition, and this is because to want to create a perceived value. There is a common perception that high price means high quality. So, to create the sense of affluence, status and good quality, companies increase the prices of their products. They are called as premium goods. For example, Apple and Iphone.

Distribution:

The place where you sell your goods, speaks a lot about its quality. For example: Tennis and golf equipment manufacturers position certain models in a way that it seems that the quality is higher compared to other brands in their line . they sell it only in professional shops or speciality stores. Now the public usually believe these are the top-of-the-line models because these rackets and clubs may not be available at Walmart or Target. Hence they desire for more of these products.

Affinity:

You can position your company to play on their loyalty to their group if you have a customer base with a common, personal denominator. For examples – there are marketers who advertise their products as made locally or in the United States; Christian-owned businesses; alignment with a charity; or sponsorship of a school sports program.
Positioning is all about getting the product connected to the target market in a way that the product was conceived as or the marketing strategy. It is the step before the final delivery, but the ultimate step in terms of creating a reputation or brand that will either attract or repel customers in their own ways.

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What is insurance? What are the elements of a contract of insurance?

In modern times every exchange is based on an agreement that is enforceable by law and hence is a contract. There are many types of contracts that people enter into. It may be a service contract with an employer or a lease rental contract with a landlord or a business contract with a seller/buyer. And like all these, insurance is also a legally valid contract.

What is Insurance

Simply put, insurance is a contract in which an insurance company agrees to pay to the policyholder a predetermined amount or the extent of the loss (which ever less) that the policyholder has incurred because of the happening of an untoward incident(s), that were agreed to be compensated for in terms of money, all in exchange of insurance premium that the policyholder should pay to the insurance company for the contract to begin. The total value of coverage provided by the insurance company to the policyholder is called total sum insured. Read more : Beginner’s Guide to Insurance

Features of an insurance contract

1. Utmost good faith:
   Insurance contracts have a peculiar feature of UTMOST GOOD FAITH because here the insurance company issues a policy in the name of the proposer (policy holder) by believing that all the details provided by the policyholder are completely true and provided in good faith and in utmost gold faith because the details are best known only to the proposer. The same is true vice versa also that the insurance company is expected to issue the policy by providing all the relevant policy details as understandable by the policy holder.
2. Indemnification:
   The insurance company agrees to compensate or indemnify the policy holder, a loss that can be quantified in terms of money and compensate him in such a way that it puts the insured back in the position as if the accident had not happened. An insured does not stand to make a profit from an insurance contact.
3. Insurance interest:
   The person taking the policy should have an interest in the well being of the person for whom or property for which he is taking the policy. This is called insurable interest. The policy buyer may acquire interest by common law of ownership or by a statute. Eg: Life insurance in the name of self or spouse or children; insurance for the property or business owned; insurance taken for one's employees.
4. Consideration:
   A prerequisite for a contract is exchange of something in return for something. So the insurer agrees to compensate the insured in return for a small sum of money called premium which may be paid at the onset of the policy contract or in installments during policy period depending on the country's insurance regulations.
5. Contribution:
   If an insurer holds policies from multiple insurance companies for the same subject matter, the insurance companies are required to share the compensation to be paid to the insured in the same proportion as the sum insureds the different policies. This is true in case of all policies except of life insurance and health insurance policies where each insurer is required to pay the whole sum insured to the policyholder.
6. Subrogation:
   This feature of an insurance contract means that in case the insurance company pays the insurance amount to a policyholder because of the negligence caused by a third-party, the company is entitled to be of compensation by the third party.

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What are Interest Rate Swaps(IRS) | What happens in Interest Rate Swap ?

In the world of finance “Interest Rate Swap” is a financial technique used by financial institutions around the world. But we don’t realise that it is applicable to a common borrower like you and me. IRS is considered to be a complex financial arrangement but ironically it is barely a 5-10 minute simple read that can help you not only understand the process of an IRS but also use this in your next borrowing negotiation, thus helping you save a considerable amount of interest on your debt. Let's see how.

What is Interest Rate Swap with example? How does an interest rate swap work?

Let's break down the term first. ‘Interest Rate’ indicates that it talks about a rate of interest on a loan payable by any borrower (debtor) to the lender. ‘Swap' simply means to take something by giving something. So, IRS means that you as a borrower and payer of interest are going to come into an arrangement with another borrower whereby you will take up a fixed rate of interest payment on the debt in place of a floating rate of interest or vice versa. Now, this decision of yours will be completely based on your expectations of a rise or fall in interest rates in your country or with your bank or your lender. And an IRS can take place only if there are two borrowers who have different expectations about the future interest rates.

Interest Rate Swaps Example

So, suppose Mr. A has a loan of $100,000 from his bank with a fixed rate of interest on the debt @ 8%. And also imagine that Mr. B, another borrower, has borrowed $100,000 from his bank at a floating rate of interest @ LIBOR+2%. Suppose LIBOR is 5% now.So Mr. A is paying $8000 p.a. and Mr. B is paying $7000 p.a.

*LIBOR is a benchmark floating rate of interest
*(Floating rate of interest is a changing interest rate on your loan as and when your lender bank changes the rates due to economic changes)
*Mr. A & Mr. B need not necessarily be borrowers of same amounts but we have considered $100,000 for easy calculations.

From, fixed rate of interest and floating rate of interest, you must have learnt that at the time of taking a loan Mr. A has opted for a fixed interest rate on his loan because he assumes that the interest rates in the future are going to rise, while Mr. B expects a fall in the future interest rate and so opts for a floating interest rate.

Going forward, they both are unhappy with their interest rates i.e. Mr. A thinks that he was wrong about his assumption and Mr. B finds it a burden to pay an uncertainly changing interest rate as and when the bank changes its rate and so they decide to enter into an IRS agreement whereby Mr. A will be paying interest at a floating rate and Mr. B at a fixed rate after the Swap. So with this change Mr. A will be paying $7000 p.a. as interest when the interest rates are unchanged and Mr. B will be paying $8000 p.a. at all times.

If the LIBOR rises from 5% to 7% Mr. A will end up paying $9000 p.a and Mr. B interest remains same. Again if the LIBOR falls from 5% to 4% Mr. A ends up paying $6000 p.a. while Mr. B pays the same $8000 p.a. as he has shifted to a fixed interest rate regime after the Swap.

Thus, an IRS is a mutually benefiting agreement between 2 parties who are borrowers in some form and have an opposite expectation about the future interest rates or have an opposite risk taking ability.

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Difference between Fixed Rate of Interest & Floating Rate of interest?

Any borrower of money, either an individual or an institution is expected to pay an extra amount over and above the actual amount of loan to the lender at the time of repayment. The extra amount paid is called interest and the actual amount of loan is called principle. Interest to be paid by the borrower to the lender is calculated as a percentage of the principle. Hence, the term Interest Rate.

There are broadly two systems of interest rates charged by banks and financial institutions or any lender following an formal system of lending: The fixed rate of interest and floating rate of interest.

Here is a simple explanation for the two!

Fixed Rate of Interest

When a lender- a bank/ financial institution or an individual lends at a predefined and unchangeable rate of interest to be paid by the borrower on the principle (amount of loan) for the duration of loan irrespective of what happens to the interest rates in the country in the future, the rate of interest is said to be fixed.

Fixed rate of interest is a better choice for a lender if he expects a fall in the interest rates in the future. So, he would profit from receiving a higher rate of interest even when the general interest rate levels are down in the future. On the contrary, this would be beneficial for a borrower if he expects the rates to rise in the future. In this case, he would enjoy paying a lower fixed interest rate irrespective of the higher rates in the future.

Floating Rate of interest

Let's say that at the time of lending, the lender specifies the interest rate (to be paid by you) on your loan to be LIBOR+2%. This means that your interest rate is not fixed but rather variable. It may rise in the future if the LIBOR rises and fall if the LIBOR falls thus requiring you to pay more and less in the cases respectively. Thus, under this rate of interest the rates are completely dependent on the base – LIBOR.
Going by the same logic as above for a lender, floating rate of interest is ideal if he foresees a rise in the interest rates in the future but for a borrower it is rational to choose a floating rate of interest if he expects a fall in the interest rates in the future.

Which is better, a fixed or variable rate loan?

Fixed vs Floating Interest Rate – Which Suits you The Best

From the above you may realise that you should opt for a fixed rate of interest for your loan if you are expecting the future rate of interest in your country to be higher than they are now and choose a floating rate of interest if you are expecting a fall in the interest rates in the future. The exact converse will be true in case of a lender.

You would know this if you're reading the newspapers or financial tabloids that discuss about the future plans of the Central Bank of your country or your lending bank/ institution. If there are signs that the Central Bank or your lending bank is likely to rise the rates of interest, you as a borrower should know that a fixed rate of interest is what you must choose today.

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How are Open Market Operations (OMO) and bond yields related?

OMO or open market operation is a quantitative financial tool by which a country’s Central Bank (The Federal Reserve System of the U.S.A., the European Union of the U.K., the Reserve Bank of India, the People’s Bank of China and all others) regulates the supply of money in its economy. A Central Bank’s main responsibility is to keep the inflation in check by managing the money supply, ensure that enough foreign reserves are maintained and the value of the currency is stable and not volatile in the constantly changing global relations and scenarios.

What is an OMO or Open Operation?

OMO means that a country’s Central Bank (central bank) involves in either purchase or sale of the government securities from and tothe banks operating in that country. The central bank performs this on behalf of the Government of that country. OMO takes place constantly between the banks and the central bank to keep the amount of money supply in the economy in check.

When does the central bank perform an OMO sale ad when does it perform an OMO purchase?

OMO sale-
If the central bank witnesses a rise in the inflation which means that more money is chasing fewer goods thus implying that there is money in the economy, the central bank announces an OMO sale i.e. the sale of securities in return for money from the banks. By this, the central bank has sucked out money from the banks which are the vehicles of money supply. Now, with quantity of money having become less, lending becomes difficult and so the lending rates rise. With this rise, deposit rates also rise in the banks.

OMO purchase-
If the economy is facing a shortage of money and the rate of inflation is below the required level it means that there is a difficulty in conducting day-to-day businesses in that country. So, the central bank steps in and decides an OMO purchase whereby it purchases the securities from the banks and gives them money. With this, the banks become money rich. Lending gets cheaper and easier. As a natural consequence deposit rates fall because the people are interested in borrowing at cheaper rates from banks and investing in business and infrastructure projects or simply any money churning activity.

So, how are bond prices related to all this? How does OMO affects bond yields?

Now, with higher deposit rates being offered by the banks after an OMO sale, the bond investors feel that the coupons they would receive from buying an older bond would be lesser attractive than the new deposit rates and as a result they are willing to pay lesser to buy the old bonds.Hence the price of the old bonds begins to fall with an increase in interest rates in the economy. Therefore interest rates and bond prices are inversely proportional. The exact reverse would happen in the case of an OMO purchase. Let’s understand this with a $100 investment comparison through this table.

How are interest rates related to open market operations? 

It can be seen that after an OMO sale the bank offers a better return than the bond investment. And so the people agree to buy the bonds for lesser as they are getting lesser returns. Thus, an OMO sale brings the bond prices down and an OMO purchase pushes the bond prices up.

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Market Potential of a Product: Definition & Analysis Example

What is market potential?

Market potential is defined as the total of the market size for a product at a given period of time. It is always calculated at a specific time. The measurement of market potential is usually done by two ways-either by sales value or by sales volume.

Example of market potential

The market potential for five motor bikes may be Rs 50,000,000 in a year. On the other hand, the market potential for cars may be 500,000 units each year. Now, this is a measure of sales volume rather than sales value.

We should know that the market potential is just a snapshot in time. It's a fluid number that changes. It is dynamic which changes with the economic environment. It represents the upper limits of the market for a product. For example, the demand for products that are typically financed, like cars and houses will be affected by rising and falling interest rates.

Market Potential Analysis

Marketing process will be successful if we find out the market potential of a product and therefore it requires marketing research. First of all, analysis of your potential customer base is important. Then analyze your competition because they are who you compete with and very importantly analyzing the current environmental conditions. It is because current environmental conditions may affect market potential and it is therefore important.

How to determine Market potential for any product or service?

1)  Analyzing Potential Customer Base

Important information that is required will be:
•   The population size of your target market
•   their product preferences
•   their household income.
And hence we can come to know about the number of potential customers and whether they can actually afford the product. You need to determine the size and demographic characteristics of your potential consumers

We can analyze the data using either primary data or secondary data. Both are effective and are used. Primary data is the first hand information, and secondary data is the second hand information which is not directly obtained.

2) Analyzing Competition

If you are willing to bring out a new product in the market you have to analyze your competitors well. It is said that a marketer should know its future competitors to actually position himself in the market. You have to know the competitors’ strengths, weaknesses, threats and opportunities and for that SWOT analysis is important.

3) Analyzing the Current Environment

We all know that market potential is not a static concept. It is absolutely dynamic which changes with the general economic and political environment.

For example:
•   If interest rates go up, the demand for a particular product will go down and this will decrease the product's overall market potential.
•   A change in tax rates may also suppress spending less money is available on discretionary purchases, thereby reducing a product's overall market potential.
•   On the other hand, market potential can increase if wages increase, taxes are lowered or interest rates decline. Thus to conclude we can say that market potential is defined as the total of the market size for a product at a given period of time.

What is Actual Market?

Actual Market is a type of environment situated in the market which is characterized by heavy transaction volume and day to day transactions hold importance in it. It can be called as commodity market because commodities in actual market are delivered immediately.

The actual market is basically concerned with the buying and selling of commodities. Commodities are tangible goods that are needed by humans. It usually involves diverse types of products.

Commodities are goods which can be of three types. The first one being FMCG products also known as fast moving consumer goods. These goods are needed every now and then like salt, sugar, rice, Colgate etc. Then we have durable goods which are long lasting and their need arises once in a while, like TV, ac, fridge, sofa set.

And then lastly, we have speciality goods. These are expensive goods which when bought adds status and pride to our value. Like ancient articles, jewellery, paintings. These goods are bought with care and a lot of thought unlike FMCG which can be bought without a second thought.

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What is Dosanomics? Raghuram Rajan's Dosa Economics explained

Mr. Raghuram Rajan is an Indian Economist and a distinguished Professor at the University of Chicago. Mr. Rajan was the Chief Economist and Director at the IMF between 2003 and 2006, the Chief Economic Advisor of India in 2012 and the Governor of the Reserve Bank of India from 2013 to 2016. During his governorship he worked with a vision to bring down inflation rates, bring out large scale financial inclusion in the Indian masses, promote digitalization in the Indian Banking System and dig out bad loans that lay hidden in the Indian PSBs- a move that has opened the nation’s eyes that all is not well with the Banking system. Unlike many of his predecessors in India and peers around the world he is known for his bold and massively unpopular steps when it came to bringing India’s economy on track.

During one of his public speeches and press meetings he tried to explain his move to bring down inflation. He wanted to convey that a low interest rate with a low inflation rate is much better than a high interest rate with a high inflation rate. During his tenure the inflation rate had been controlled to 5% from 10% and as a result the bank term rates also fell from 10% to 8%. This left the conservative term deposit lovers disgruntled. So, to explain his move and to instill the basics of economics in the minds of the masses he used the simple example of a Masala dosa, thus the term Dosanomics.
Here’s his example:

Scenario 1

High inflation 10%

The saver knows that he can get more dosas if he just kept his money in a bank’s Term Deposit at 10% p.a. for one year. By the end of 1 year he gets Rs. 10,000 (100,000*10%) plus the original Rs. 100,000. So with Rs. 110,000 he can buy 2200 dosas. But here’s the catch! The economy is experiencing a 10% inflation rate. This means that the cost of a dosa has risen by 10% from Rs. 50 to Rs. 55. So effectively he can buy (Rs. 10,000/55) 182 dosas and not 200 dosas from the interest money at the end of a year.

Scenario 2

Low inflation 5.5%

If the saver deposited his money for a year @ 8% p.a. he would get Rs. 8000 as interest and he would be able to buy (8000/50) 160 extra dosas. But at the same time the inflation has reduced from 10% to 5.5%. that makes the cost of a masala dosa Rs 52.75. Thus the new number of dosas he can buy is (8000/52.75) 152 dosas.

After having read until now you must be wondering about the effectiveness of the Dosanomics, isn’t it? The calculation is wrong somewhere. So where is the error?

During high inflation one can buy 1818 dosas with Rs. 100,000 at Rs 55 per unit and 1896 dosas during low inflation. So ultimately,
High Inflation; High Interest Rate-- No of dosas: 1818+182=2000 dosas.
Low Inflation; Bit Low Interest Rate-- No. of Dosas: 1896+152=2048 dosas.

By this Dosanomics we now know that the savers are earning (48/2000) 2.5% more dosas at lower inflation levels!

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Warren Buffett, the 4th wealthiest man in the world today is the Chairman and CEO of Berkshire Hathaway and is universally known as the best investor. He believes in value investing and a frugal lifestyle and has stood by his core principles for decades. Every investor has a lot to learn from Buffett's investment experience and expertise spanning at least half a century. His simple yet hard-hitting investment principles and strategy can be best learnt from some of his famous quotes.

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Difference between Business Markets & Consumer Markets

Usually consumer marketing is aimed at large groups and they use mass media .While advertising is limited it often helps the business marketer set up successful sales calls and therefore set a good foundation.

Marketing to a business is trying to make a profit (business-to-business marketing) and not always for personal use.It has been found that Business marketing has existed since the mid-19th century. Due to so much advancement,the providers of goods or services can sell their commodities directly to households through mass media and retail channels. A marketer adds so much of research on business marketing has been done in the last 25 years. It is a business market that is what helps a person start his career after which he moves on to consumer market. This began to change in the middle to late 1970s.

Business market vs consumer market

Business markets do not exist in isolation as they are dependent on other factors.Business markets have a derived demand. It means that this has a demand in them exists because of demand in the consumer market.Compared with consumer market,the negotiation process between the buyer and seller is more personal in business marketing. Most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals. It can be seen that it is due to the underlying consumer demand that has triggered this is that people of India are consuming more electricity. One of the examples can be of Indian govt. who would be wishing to purchase equipment for a nuclear power plant. Now, when the income of people increases,the spending power of citizens increases, and therefore, countries generally see an upward wave in their economy.

When there is a single consumer market demand, it can give rise to hundreds of business market demands. Let’s take for example cars in India. The demand for cars in India creates demands for other equipment. These equipment include castings, forgings, plastic components, steel and tires and therefore, this creates demands for casting sand, forging machines, mining materials, polymers, rubber. Now, if there is an increase in demand of cell phones, there will also be an increase in demand for other equipments such as mobile chargers, earphones and mobile accessories. Therefore what we can conclude is each of these growing demands has triggered more demands.

Cities or countries with growing consumption are generally growing business markets, so we can say, consumption increases and it leads to more demand.

Business marketing vs. consumer marketing

There are many differences between consumer market and business market from a surface perspective being seemingly obvious, there are more subtle distinctions between the two. It has been found that Business marketing has existed since the mid-19th century. Due to so much advancement ,now, the providers of goods or services can sell their commodities directly to households through mass media and retail channels.

Usually consumer marketing is aimed at large groups and they use mass media .While advertising is limited, it often helps the business marketer set up successful sales calls and therefore set a good foundation.

Marketing to a business is trying to make a profit (business-to-business marketing) and not always for personal use.

Comparing with consumer market,the negotiation process between the buyer and seller is more personal in business marketing. Consumer market is basically a market that is Business to Consumer whereas a business market is mainly B2B market.Most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals It can be seen that it is due to the underlying consumer demand that has triggered this is that people of India are consuming more electricity. Now, when the income of people increases,the spending power of citizens increases, and therefore, countries generally see an upward wave in their economy. The economy of a nation grows when there is greater demand of products which means more production and hence, greater employment, income and savings and hence, a market is a result of demand.

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Factors influencing Perception in Organizational Behavior

Perception is the process of receiving, selecting, interpreting and organising information so that it fits into the framework of knowledge we have of our environment.

Perceptual Process

1. Receiving Stimuli- Our environment presents us with different kinds of stimulus which is received by our five senses like sight, smell, taste, touch and feel.
2. Selecting stimuli- It is not possible for us to take in the entire stimulus provided so we select them. Sometimes a brain can be trained to select a particular stimulus in all situations. Like a fireman always reacts to the emergency siren or a receptionist to the ringing of a telephone. A lot of stimuli in nature also often go unnoticed by us like the sound that insects make at night.
3. Organising information- Information received is put together or organised to form a meaning which forms perception.
4. Interpreting information- Interpreting requires understanding information after organising it so that it fits into our existing framework of knowledge.
5. Checking and reacting- Once information is interpreted the receiver checks the validity and correctness of his thinking and reacts accordingly.

Perceptual Distortions

Perceptual distortions affect our interpretation of stimuli received to a great extent. A few examples of perceptual distortions are- Attribution means assigning a cause to a particular event. When we attribute a cause to a particular event, we are forming a perception about it. For example an employee doesn't complete his work before the deadline. In this case not finishing work can be attributed to laziness of the employee which is an internal attribute or it can be externally attributed that is enough time and accurate information was not provided by the management to the employee.

Halo Effect occurs when a person judges the other person based on a single characteristic they possess like the way they dress, their sociability or their grades in academics.

Stereotyping.When we judge others based on the group they belong to we stereotype them. This grouping is done based on race, colour, community, ethnicity etc. Stereotypes makes it easier for one to initially perceive a person he or she meets but it always might not be true. So we must consider stereotypes as they can sometimes be useful but never let it overpower our judgement in understanding others.

Projection.People tend to perceive others character as similar to their own. For example a manager might be under the impression that financial incentives and promotions are what his subordinate wants because those are the incentives the manager himself would desire. But these incentives might not be strongly desired by the subordinate because what he really needs is flexibility and a more creative or challenging job.

Selective Perception is the tendency of people to perceive what they want to and often ignore the facts presented before them. For example an employee perceives his manager to be unfair and someone who overuses his power he will always believe his manager to be so even if the manager tries to improve his relations with his subordinate.

Perceptual Organisation

Perceptual organisation consists of principles which ease the process of organisation of elements by giving them a pattern. The following are a few principles-

Proximity refers to grouping of elements that are close to each other. Here proximity refers to proximity of elements in perceptual organisation. If there are more than three objects in an image then the objects that have minimum horizontal and vertical distance between each other are grouped together.

Similarity.Things that are look similar are grouped together. For example in a table of different shapes, similar looking shapes are seen together.

Common fate Things that move together are grouped together. Like flock of birds in the sky are perceived to be grouped together. Continuation is the tendency to perceive smooth continuity in a figure. When we see an 'x' we perceive it as a smooth continuation of crossing lines rather than two inverted 'v' s.

Closure.In a set of geometrically possible figures in perceptual organisation, the figures that look closed rather than open figures will be seen.

Perceptual constancy means that a person perceives a particular object to be of the same size, shape and colour in all situations. A person with a red car will always see his car as red even at night.

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What does the life cycle of a product mean?

Product life cycle is a theory related to a product of the company first introduced in the 1950s. This theory was formulated to explain the expected life cycle of a typical product. It covers the entire lifecycle from the start to its ending, a period divided into the 4 phases of product. It includes introduction, product growth, maturity, and decline.

The main motive of this theory is to optimize the value at each stage of a product. It is a marketing theory. This process involves managing the whole lifecycle of a product, from its introduction, design, manufacture, service and disposal to its obsolescence. Product is an important part of a business and so, this is an important theory.

Advantages of the Product Life Cycle Theory

• Identifies the sale opportunity
• Enhances the businesses opportunity and grabs them.
• Helps to increase the sales
• Manages the fluctuations which occur seasonally.
• It improves the prediction.
• Reduced time to market
• Improved product quality and reliability
• Maximise supply chain collaboration
• Leads to optimization of a product.
• It is more accurate
• Generates the data fast and correctly
• Leads to reduction in wastes.
• It helps to increase the saving via integration of activities

Every product has a life. We as consumers desire for millions of products every year. A business comes in existence to provide service by selling goods. The product life cycle has 4 very clearly defined stages.So, the business units should know properly about their product and its life cycle. Each stage has its own characteristics. The characteristics mean different things for business and therefore they constantly try to manage the life cycle of their particular products.

Below are the stages that a product generally undergoes through.

Product Life Cycle Stages

Introduction Stage – This is a stage wherein the product is introduced in the market. This stage is preceded by ample research and study of the market. In this stage the product might not sell out at its best so, it may incur losses. This is a risk-taking stage. Promotion and advertising plays an important role.

Growth Stage – In this stage, the company grows. The sales increases and the company begins to benefit from the profit margins and the overall amount of profit, will increase. Thus, investment increases and the product is given a boost in this stage.

Maturity Stage –The product is well established during the maturity stage. Now, the aim for the manufacturer is to maintain the market share. This stage is characterized by competition and wise investment strategies. Innovation and modification is needed here.

Decline Stage – It so happens that the product in the market, its demand begin to shrink. This is called as the decline stage. This generally happens because the product has reached the level of saturation and the customers are or may have stopped buying the product. This happens usually when people get bored of the same product, or a better product comes in the market with less price and better technology. This is the final stage for a product.

Product Life Cycle Examples

The example mentioned below will give a clear insight about the topic.
1. Introduction – 3D TVs
2. Growth – Blueray discs/DVR
3. Maturity – DVD
4. Decline – Cassettes

Limitations to the theory of the product life cycle

There are some limitations to the theory, although this theory is widely accepted and benefited from.

• There is no particular amount which determines the stay of a product at a stage. There may be variations. Moreover, the lengths of all the stages are not same and this is often overlooked.
• The theory does not talk about product redesign.
• There is nothing said about reinvention of a product.
• There is no evidence which says that all products must die. Some products can mature again from decline stage. There are exceptions always/
• This theory over-emphasizes new products ignoring mature products. There are possibilities when matured products can derive greater profits than the new ones.
• More emphasis is given to individual products. The companies should focus on larger brands too.

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Market Targeting: Introduction, Definition, Procedure and Methods

Target Marketing is done after market segmentation, i.e. once the marketer has identified different segments within the market (read more about what is market segmentation) . After the segmentation, the marketer then devises various marketing strategies and promotional schemes which will suit the demand of the market. This is done keeping in mind the tastes of the individuals of particular segment. This process is called targeting. Organisation targets them, once market segments are created,Targeting is the second stage. There are three steps, and this includes segmentation, targeting and market positioning.

The marketers and various organisations use various marketing plans and schemes target their products amongst the various segments.

• The most apt example here would be of NOKIA as it offers handsets for almost all the segments. They very well understand their target audience. Also each of their handsets fulfils the needs and expectations of the target market and therefore Nokia is so popular.
• Another example would be of Chik Shampoo in India that started the sachet revolution. People of the lower income group could also afford to try the new products. It fulfilled an aspiration.

Target marketing is the art of marketing only to a desired target market. Therefore, it is also called as niche marketing whose main target involves two steps such as

1. Deciding your market segment
2. Designing your marketing mix

What are Target markets

Target markets are groups of which have a specific segmentation as given below:

• Geographic (their location or climate region)
• Product-related segmentation (relationship to a product)
• Psycho-graphic segmentation (similar attitudes, values, and lifestyles)
• Demographic segmentation (gender, age, income, occupation, education, household size, and stage in the family life cycle)
• Behavioural segmentation (occasions, degree of loyalty)

Strategies for reaching target markets

There are 4 basic strategies for reaching the target market:

• Undifferentiated marketing
• Differentiated marketing
• Concentrated marketing
• Niche marketing

Mass marketing (Undifferentiated Marketing)

This is a type of marketing strategy wherein a product is sold through persuasion to a wide audience. Here, it is decided by the business unit that they will ignore market segment differences and appeal to everyone with one offer. Their main aim is to reach the largest number of people possible. The media used by them are television,newspapers and the internet(information technology, social media etc). It involves incurring huge expenses.

Differentiated marketing strategy

It is also called multi-segment marketing wherein the company decides to provide separate offerings to each different market segment that it targets. The main focus here is to appeal to multiple segments in the market. Here the company provides unique benefits to different segments.

Concentrated marketing Or Niche marketing

This approach focuses on selecting a particular market so you can concentrate on understanding the needs and wants of that particular market. Here it is the niche on which marketing efforts are targeted. This is a useful strategy as it helps the firms to focus on one segment enabling them to compete effectively against larger firms.

Direct marketing

Direct marketing is one way to reach out to target markets for the marketers. Keeping track of customers profile is integral here and the databases usually come with consumer contacts. The contacts are in the form of email, mobile no., home no., etc.

Case study of Target marketing – Titan watches

Titan watches are the best example of target marketing because of the following reasons .

• Segment selection –Titan targets multiple segments. These segments are usually based on their income, social and behavioural attributes Therefore, it targets a variety of customers as in who have low incomes and also the customers with high income.
• Marketing mix –Titan has a new product for each segment and so it does not offer the same product to different customers. Example,a Sonata is for the low income group whereas a Tommy Hilfiger will be offered to the high purchasing power individual.
• Positioning – Each product of Titan is positioned in a way that when you walk in the store you will find that there are separate sections for each class of customers depending on their income groups.
• Customer life cycle marketing – Titan ensures that it has a product whether its customer is a college going individual, a working women or a high income professional.

So, titan is an excellent example when it comes to target marketing.

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What is Market Segmentation? Basis, Types & Examples

Marketing segmentation is a tool which is commonly used by established business firms. It involves dividing a broad target market, the division can be into the subsets of businesses, consumers, or countries that have. Usually these units are perceived to have common interests, needs and priorities. After this comes the designing and implementing stage. It is a strategy which aims to target and divide the market.

What is the role of market segmentation?

Market Segmentation is generally done:

• to identify and further define the target customers
• provide supporting data for marketing plan elements
• develop product differentiation
• to help in positioning of the product better

Types of market segmentation

We will now see a few common types of segments:

1) Geographic segmentation

Geography includes nations, states, regions, countries, cities, neighbourhoods, or postal codes based on which a marketer can segment a market. Example: In hot regions, market demand would be of cotton clothing and in the winter or cold regions, the demand of woollen clothes will be higher.
Geographic segmentation is important It is a step to serving international markets which is followed by other types of segmentation. A small business has few targets, for example customers from the local neighbourhood. On the other hand, the target of a large departmental store would also be large.

2) Demographic segmentation

Demography includes age, gender, generation, religion, occupation and education level and segmentation done on this basis is called as demographic segmentation. Demographic segmentation divides markets into different life stage groups and allows for messages to be tailored accordingly. Segmentation according to demography is based on variables such as or according to perceived benefits which a product or service may provide. Benefits may be perceived differently depending on a consumer's stage in the life cycle.

3) Behavioural segmentation

This segment usually focuses on dividing the consumers on the basis of their behaviour . This behavioural aspect may include their knowledge of, attitude towards, usage rate, response, loyalty status, and readiness stage to a product.
It is important to know the behaviour of your customers, their demand, desires and expectations before entering the market. Behavioural segmentation divides buyers into segments based on their
-knowledge
-attitudes
-uses
-response/ reaction to a product.

4) Psycho-graphic segmentation

This is also called as segmentation on the basis of lifestyle. Psychology of the people play an important role in their buying decision and hence segmenting the market on this basis is important. Market researchers have found that the activities, interests, and opinions of customers are a key ingredient for marketing according to a specific need. We can see that Mass media has a predominant influence and effect on psychographic segmentation.
Psycho-graphics are very important to segmentation. They identify the personal activities and targeted lifestyle and then go ahead with their project attempt.

5) Segmentation by benefits

Segmentation can take place based on the individual benefits. It is set according to the benefits sought by the consumer or customer. It mainly focuses on the value or experience a customer derives from the product. This is a good way to segment the market because it helps the marketer know about the expectations of the prospective consumers.

6) Cultural segmentation

Cultural segmentation is a type of segmentation wherein the market is segmented according to cultural origin. Culture is an integral part of every human, and so it becomes a strong dimension of consumer behaviour and is used to enhance customer insight.
Cultural segmentation can also be found out on the basis of geography like state, region, suburb and neighbourhood.
For example: Indian culture is very different from American cultural, in all the aspects.
For instance, in India, sarees are considered to be the traditional outfit and thus here is a big market for sarees which may not be the case in other parts of the world and hence we can identify that India is a big market for sarees.
Talking about the different festivals, we have variety of sweets and confectioneries which have high demand during particular festivals and so has a big market at that point of time in the places where a festival holds importance. In countries where there is majority of Christian population, we find chocolates and chocolate products to be a big part of the eatables during Thanksgiving and Easter. This is how culture plays an important and integral role when it comes to knowing your customers and anticipating their requirement ahead of time so that they can be targeted based on specific needs and wants.

7) Multi-variable account segmentation

This is a method of segmentation which uses many variables using to develop a rich profile of a target group of customers. This might include consumers, government, media or investors.
There can be multiple ways to build a segment and multiple combinations of factors can also be used to build one. However the key is to make manageable segments, such that the number of segments is workable and the kind of requirements within a segment are neither too diverse (as a result of low number of segments) nor too similar (as a result of high number of segments).

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5 Types of Letter of Credit (LC)

In all there are 5 types of letters of credit. Banks and huge financial institutions are involved in issuing L/C to importers and accepting L/C on behalf of the exporters in an international trade. Letter of credit is a boon to exporters and importers as it takes away the risk of non-payment for the delivery and non-receipt or faulty order deliveries and wrongful discharge of the terms of a contract. Before you go on to read about different types of letter of credits do read the previous article on Letter of credit-meaning, process, parties involved with an example.

Let us read and understand them one by one:-

• Revocable letter of credit

  The word “revocable” means “cancellable”. So, a revocable letter of credit means that the letter of credit can be cancelled by the Issuing bank without the consent of or without intimating the beneficiary (the exporter in whose favour the letter of credit is issued). A letter of credit is revoked/ cancelled only when the beneficiary does not present documents to the buyer as per the terms of the contract. This type of letter of credit is risky for the beneficiary because he is unaware of the cancellation of the letter of credit while he is still feeling assured that the payment will be received on time from the issuing bank.

• Irrevocable letter of credit

  This type of letter of credit cannot be cancelled or withdrawn by the issuing bank without informing and receiving an approval from the beneficiary. In this type of letter of credit the beneficiary is intimated about the reason of cancellation and is given an opportunity to correct the errors in the documents presented to the buyer only if the buyer approves.

  

  Main Types of Letters of Credit

• Confirmed letter of credit

  There are instances when the advising bank (bank of the exporter) asks for another bank to reassure the issuing bank’s letter of credit. In these cases the reassuring bank is called the confirming bank and a confirmation of backing the issuing bank’s letter of credit is sent by it to the advising bank. Such a letter of credit is called confirmed letter of credit.

• Sight letter of credit

  When an issuing bank makes payment to the beneficiary immediately on receipt and verification of the documents from the beneficiary (exporter) it is called a sight letter of credit.

• Usance letter of credit

  Letters of credit generally carry an expiry date on them. In an L/C contract where the issuing bank agrees to pay the beneficiary only on the expiry of the letter of credit, the L/C issued is called usance letters of credit. This is considered risky from the point of view of an exporter because he is left unpaid for a considerable period of time after the delivery of the documents and shipment. He might also be running short of working capital for his other orders because of this.

As letter of credit aims to protect the interest of the exporter by making payments against the documents sent to the importer, from the point of view of an exporter, a letter credit that is irrevocable, paid on sight and is confirmed by a confirming bank is the most secure and best option. Also read what is bank guarantee (b/g) with example in simple words.

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What is Letter of Credit (LC) ? Parties involved, Process

Trade between different countries of the world to exchange goods and services among themselves is called international trade (read what is International trade). There are innumerable risks associated to an international trade which create hindrances to the trade. That is exactly when a risk minimising option called Letter of Credit or LC offered by banks and financial institutions comes to the rescue of both the sides of a trade. (Read types of letter of credit)

Let us see what a Letter of Credit means, who are the parties, involved in LC and how the LC process takes place in simple words using an example.

Letter of Credit : Definition

Letter of Credit is a piece of paper issued by the bank of the importer on the request of the importer by which it agrees to pay the exporter the amount of money to be paid in exchange for the delivery of the goods if the importer fails to pay only after all the goods delivered on time and are as per the order. So, the entire risk of payment is borne by the bank of the importer. (Read What Is Bank Guarantee (BG) With Example )

Illustration of Letter of Credit

Let us assume that there is an international trade contract between Mr. A from the U.S.A. being the importer and Mr. X being the exporter from Singapore. Now, there is ABC bank of the U.S.A., called the issuing bank, which is the bank connected with Mr. A and XYZ Bank of Singapore, called the advising bank which is the bank connected with Mr. X. The advising and the issuing banks charge a certain amount of fees and commission for the services they provide.

Parties involved in Letter of Credit

So in a simple LC scenario there are 4 parties involved.

1. Mr. A – the importer from USA
2. ABC Bank - the issuing bank (bank which supports the importer)
3. Mr. X – the exporter from Singapore
4. XYZ Bank – the advising bank (bank connected with the exporter)

Steps in a Letter of Credit

In all, a letter of credit has 8 steps from the time the transaction originates to when both the sides are compensated.

1. Mr. A places an order with Mr. X and is expected to submit a Letter of Credit to Mr. X.
2. So, he goes to ABC bank and submits an application requesting a Letter of Credit in favour of Mr. X.
3. Once the issuing bank, ABC Bank satisfies itself with the credentials of Mr. A, it issues an LC which it passes on to XYZ Bank, the advising bank.
4. After XYZ bank checks the authenticity of the LC issued by ABC bank and makes all other relevant checks, approves it and informs Mr. X that an LC is issued in his favour.

   

   Procedure of Letter of credit

5. Then Mr. X prepares all the necessary documents related to the contract submits his bank for approval and simultaneously releases his goods for delivery to Mr. A.
6. These submitted documents are verified by XYZ bank which after approving them sends it to the ABC Bank.
7. After the issuing bank, ABC Bank checks and approves the documents sent by the advising bank, it releases the documents to Mr. A and also charges commission and fees from him, who can now take the delivery of his order against these documents.
8. ABC bank now releases the payment to XYZ bank who then credits to the Mr. X’s account after charging some commission for the services provided.

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What Is Bank Guarantee (BG) With Example

Every trade transaction/ monetary dealing either domestic or international (read more about What is International trade/ foreign trade? Meaning, purpose & types) is faced with the possibility of innumerable risks from both the sides of the business contract. That is when a Bank Guarantee and a Letter of Credit offered by banks help to ease the tension of dealing with risks in carrying out the trade contract.Let’s understand what is a Bank Guarantee- the parties involved and its process with help of an example.

What is a Bank Guarantee?

A Bank Guarantee is a an assurance given by a financial institution (usually a bank) to pay on behalf of its client (buyer/importer/borrower) who is obligated to pay money to a seller of some goods and services or a lender or anyone who is to be paid for a certain transaction that is going to take place. Bank Guarantee can be claimed only when the seller has performed his part of the contract and the issuing bank’s client (buyer) has failed to make the payment.In other words, it is always the obligation of the buyer to pay for the purchase/borrowing and only if he is unable to make the payment on the date of payment, the bank guarantee can be put to use. In such a case the bank will pay the amount to the seller’s bank and later collect the amount from its client. There is no interest charged to the applicant unless the bank has had to pay the money to the seller. Bank Guarantees are issued for a commission on the contract value.

Parties involved in a Bank Guarantee

There are usually 4 parties in a BG. They are-

1. A buyer/importer/borrower- the applicant
2. The buyer’s/ importer’s/borrower’s bank- the issuing bank
3. The seller/exporter/lender- the beneficiary
4. The seller’s/exporter’s/lender bank’s- the advisory bank

But in case of large contracts like real estate and infrastructure projects the seller/builder also needs to present a Bank Guarantee from his bank to prove his credit worthiness to the purchaser to be able to perform his part of the contract without delay as these contracts require a huge amount of money to be executed efficiently.

Bank Guarantee Procedure

Process of Bank Guarantee using an example

Imagine that James makes a purchase order for 1000 tables for his school from M&S. A& Co. for $20,000. M&S.A& Co. wants an assurance from James that he will not default the payment for the order. So, James goes to his bank, say, XYZ Bank and applies for a Bank Guarantee. The bank upon receiving the application does a thorough background and credit worthiness check of James and approves to issue a Bank Guarantee. James provides the details to M&S. A& Co. who then passes this on to its bank, say, ABC bank where the authenticity of the BG is verified and accepted. BG provides M&S. A& Co. to claim for the payment from XYZ Bank in case of a default by James. Now, suppose that M&S. A& Co. has delivered the tables as per the contract on time to James and he is unable to meet the payment due to some reason. Then, M&S.A&Co. makes a claim for payment from XYZ bank. After satisfying itself regarding the fulfilment of the seller’s part of the contract, XYZ Bank releases the amount. Later on, XYZ Bank collects the amount from James along with an interest on the money paid to M&S. A&Co. and a commission on the contract value for the Bank Guarantee service.

Important points:

• Bank Guarantees provide a security from credit risk to the seller/exporter/lender.
• Bank Guarantees are intended to protect the interests of both the buyer and the seller as explained above regarding large scale contracts.
• Bank Guarantees are majorly used in real estate and infrastructure projects.
• The primary obligation to pay for the contract is on the buyer (applicant) while the secondary obligation to pay is on the buyer’s bank (issuing bank).

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What is International trade/ foreign trade? Meaning, purpose & types

Meaning of International Trade:

International trade is the relationship between different countries for the purpose of trade and commerce. It comprises Imports (buying from another country) and Exports (selling to another country. The trade taking place may be of goods like garments, agricultural products, gems, petroleum etc., or of services such as inviting and/or sending people who possess technical knowledge and expertise like a doctor, diplomat, engineer etc. (Read what is a letter of credit)

Purpose of foreign/international trade:

The answer is pretty simple. Since not everything that the residents need is available or available in adequate quantities in a country, there is a need to purchase (import) from the countries that have more or surplus of that product. So, while countries need diamonds and gold more than they have, they inevitably import them from Africa. Similarly when a country has a shortage of professional engineers and doctors, it looks for professionals who are ready to immigrate. Secondly, there are times when a country has excess or surplus of a product or service which will be wasted if not sold to other countries. We can think of China exporting huge volumes of steel to its Asian neighbours because it has more than it needs. Thirdly, if a country/ a tradesman feel that a particular product or service earns more abroad than in the home country, they are tempted to engage in exporting off such cash cows.

Types of international trade:

A. Based on agreement

• Bilateral trade- if there is an agreement between two countries to buy and sell certain kinds of goods and services in exchange of money, it is called bilateral trade agreement. A country can have bilateral trade agreement with any number of countries.
• Multilateral trade- if there is a trade agreement between more than two countries to buy and sell certain kinds of goods and services among themselves in exchange of money, it is called multilateral trade agreement. Any number of multilateral trade agreements can be signed by a country.

Components of International Trade

B. Based on activity

• Import trade- If a country purchases goods and services from another it is called an import trade for the purchasing country.
• Export trade- If a country sells goods and services to another it is called an export trade for the selling country.
• Entrepot trade- if goods and services are sent or received from a country for the purpose of sending to another country, it is called entrepot trade.

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5 Mistakes Not To Be Made While Investing In Mutual Funds

When it comes to investing our hard earned money, we want be aware and cautious of what we are doing and what is to be done to make the best decisions. But many times in this endeavour of ours we tend to make unpardonable mistakes that cost us a lot in the future and hurt our money. (read myths about mutual funds busted)

Here are 5 mistakes that you must not do while investing in mutual funds:

1. Waiting for the right time
   Mutual fund investments or any investment in the markets are subject to a lot of economic, social and political pressures from around the world. And as such no moment is a good time or a bad time unless it becomes a moment of the past. The sheer lack of unpredictability makes determining the right time impossible for a mutual fund investment. Moreover, long term investors (5-7years) need not worry about entering the market at the right time because over the span of the investment, markets are going to see the ups and the downs and at the end the downs are going to be balanced by rewarding ups. A rational investor would opt for a SIP (read what is a SIP) where in the investor makes a regular investment while reducing the risk of loss in investment value and still reaping average returns of around 12%.
   
2. Investing all money at a time
   As discussed above, it is very difficult to define the best time to make an investment because the definition of “good time” keeps changing every moment. And given this understanding, investing all the money at a time in a mutual fund can harm the invested money in case a downfall in the economy follows soon after the investment is made. We cannot foretell the ups and downs that are in store. Hence, again the best and safest option would be to opt for a mutual fund SIP after researching a few funds and seeing their past performances and management skills. (read 20 things to consider while investing in a mutual fund)
   
3. Diversifying too much
   All of us have heard “Do not put all your eggs in the same basket”. This is relevant to investments as well. Yes, it is important to stay invested in equity, debt and hybrid but only after ascertaining the objectives of and expectations from the investment. Just picking tens of schemes and investing in each of them so as to reduce the risk of losses is a foolish decision. Firstly, an investor should realise that he is paying annual charges on each of his mutual fund schemes. Secondly, he should understand that investing in 10 different schemes but all of the same equity or debt or hybrid or sector based will lead him nowhere. If an investor has a low risk taking capacity but still wants to see substantial returns on the investments rather than diversifying in a haphazard manner he must look to invest in a well managed and good performing MF scheme for a long period of time.
   
4. Panicking and redeeming your mutual fund investments
   It is a human tendency that once he has invested money he will try his best to keep a track of how the markets are moving, how the economic situation in the country and abroad is, how any new regulation would affect the investment and so on and so forth. A less informed and an irrational investor would panic once he comes across a negative piece of news or believes the rumours that are circulated on any mass media platform. Staying invested at such times is the wisest decision to make if he is investing in a mutual fund SIP. Mutual fund SIPs have a feature of averaging out the ups and downs and compensating for the same and yet providing a decent return of investment. And long term investors of any type of mutual fund should never opt to redeem their investment at such times because it is the rule of the market and economy to stabilise and grow over the long term, thus nullifying any losses. (read mistakes people do while investing in mutual funds)
   
5. Going only by past performances and or star-ranks
   Although an investor must look at the past performance of a mutual fund scheme before choosing to invest in it, going just by the past performance is a huge mistake. That means what an investor must look for is a scheme that may or may not be the best star-rated or the best performing scheme of its category, but also see how the scheme has performed when the economy has seen the ups and downs that we have been talking about. He must also see the expense ratio, the entry and exit charges (read what is a expense ratio and entry & exit load). He should also pay heed to how the other mutual fund schemes under the same AMC are performing. He should look at the risk involved in the mutual fund schemes he is looking at and see if they match his risk appetite. Lastly, he must see if taxes under one category of mutual funds are eating too much into his returns.

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