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Final Report - Aashita Sabharwal
Final Report - Aashita Sabharwal
ON
By
Aashita Sabharwal
Enrollment Number- 19BSPHH01C0014
Name of the Organization: PNB MetLife India
Insurance Co. Ltd.
By
Aashita Sabharwal
Enrollment Number: 19BSPHH01C0014
PNB MetLife India Insurance Co. Ltd.
Submitted to:
Company Guide Faculty Guide
Mr. Love Sehrawat Dr. Anuja Agarwal
Chief Business Manager Professor
PNB MetLife India Insurance Co. Ltd. IBS Hyderabad
Firstly, I would like to thank IBS Hyderabad for giving me the opportunity to work as an intern
with PNB MetLife India Insurance Co. Ltd., Delhi.
I would also like to extend my thanks to PNB MetLife India Insurance Co. Ltd., that they
believed in me and gave me the opportunity to work so closely with their organization and
provided me an experience of the professional world. It gave me a platform to understand real
life situations and implement all those concepts which I had earlier come across only in
textbooks as part of my course.
I express my sincere gratitude to Mr. Love Sehrawat – Chief Business Manager – PNB MetLife
India Insurance Co. Ltd., Delhi for his constant support throughout the internship. I thank him
for his valuable guidance which has helped me thoroughly during the project.
I would also like to convey my deep sense of gratitude and thanks to the Faculty Guide- Prof.
Anuja Agarwal for her constant support and feedback throughout the internship.
I extend my warm regards to my parents who have been my pillars of strength during all walks
of life.
Lastly, I want to thank my friends who helped me throughout the project by giving their
valuable inputs as and when required.
1. Introduction
1.1 About the Project …………………………………………………………….. 1
1.2 Purpose and Scope ...……………………………………………………….....2
1.3 Objectives ...………………...………………………………………………....2
1.4 Limitations ...……………………………………………….…….……...….....3
2. About the Company
2.1 PNB (Punjab National Bank) …...………...………………...………………...4
2.2 MetLife Inc. .…….………………………………………………………….....4
2.3 PNB MetLife India Insurance Co. Ltd. ……………..………………………...4
2.4 Core Values …………………......……………………...……………………..5
2.5 Life Insurance Products ………………………………...……………………..5
3. Literature Review ….……………………………………...………………………6
4. Research Methodology
4.1 Data Sources …………………………………………………………………...8
4.2 Research Approaches ………...………………………………………………..8
4.3 Research Instruments …………………………………………………………..8
4.4 Development of Questionnaire ………………………………………………...9
4.5 Sampling ……………………………………………………………………….9
5. Main Text
5.1 Risk, Behavioural Finance and Portfolio Management ……………………….10
5.1.1 Understanding Investors wrt Behavioural Finance ……………………10
5.1.2 Risk Perception of an Individual ……………………………………...11
5.1.3 Risk Appetite and Portfolio Management …………………………….12
6. Analysis
6.1 Demographic Profile of Respondents ………………………………………..13
6.2 Reliability analysis ………………………………………………………..…14
6.3 Risk Scale Construction ……………………………………………………..14
6.4 Objectives of Investors for Investment ………………………………………16
6.4.1 Capital Appreciation ………………………………………………….16
6.4.2 Dividends …………………………………………………………….17
6.4.3 Tax Benefits …………………………………………………………..17
Primary and secondary research is conducted to gather the data from 100 respondents from
Delhi, for this study and it is analyzed that the overall risk perception level of investors is
moderate to high and there is no significant relationship between gender and investment
choices. This implies that the sample does not prove that a particular gender has a higher or a
lower degree of risk tolerance. It is also observed that experience in stock market has a higher
significance on the level of risk appetite of a person and as experience increases, the risk-taking
capability also increases. The reason for overall moderate-risk perception among these 100
respondents could be the average level of financial awareness and knowledge about markets
and finance because 60% of the respondents belong to the age group of 18-40 years and hence
it can be said that they have comparatively more knowledge about finance and investment.
Yet, the knowledge about finance and financial market is not sufficient enough to increase their
risk-taking capacity.
Money plays an important role in one’s life. Be it a rich person or a poor, everyone wants to
overcome the monetary problems of their present and future and smart ones do it by investing
money. Investment is putting money into an asset with the expectation of capital appreciation,
dividends, or interest earnings. In the words of Dr. P. Amaraveni and Mrs. M Archana (2017),
“Financial Investment is an allocation of monetary resources to assets that are expected to yield
some gain or return over a given period of time.” People invest money to derive a future income
in the form of interest, dividends etc.
A person who saves money and put it in investment avenues is called an investor. An investor
can be any person, an individual, a government, or a corporation and in all of the
aforementioned cases, the investor is trading a known rupee amount today for some expected
future stream of payments that will be greater than the current outlay. An investor has many
investment choices where he can invest in, such as, Life Insurance, Mutual Funds, ULIPs,
Stock Market, Real-estate, Gold and other metals, banks, EPFs, PPFs and so on. Each
investment avenue comes with a different level of risk and return. This allocation and
diversification of monetary funds into different investment avenues is called portfolio
management.
Behavioural finance is a crucial arm of finance that plays an important role in an investor’s
decision-making process and tries to explain the irrationality of investors. This report aims to
analyse the behaviour that affects any investor’s choice. Preferences of individual investors are
based on various factors like psychological, socio- cultural and environmental factors. These
factors build up the perception of an individual and makes him either a bold investor (highly
risky) or a safe investor (risk averse). According to Lopes (1987), “risk refers to situations in
which a decision is made whose consequences depend on the outcomes of future events having
known probabilities.” Risk perception analyse the reactions and opinions of people when they
are exposed to certain activities that can be harmful or can possibly create a loss.
There are various factors that influences one’s behaviour and decision-making power, such as
levels of literacy, income, future goals and so on. For the purpose of this study, individuals
The purpose of the report is analysing the risk perceptions of current and potential investors
and understanding how the decisions are made based on an individual’s risk tolerance capacity.
An attempt is also made to find out the factors that forms an investor’s risk perception. This is
done by identifying the needs and goals of customers, understanding their psychology, finding
out their financial problems and then offering them a suitable investment product and create a
profitable portfolio for them during the course of internship. The investor could be a novice
who has no prior experience about investment market or a wizard in the same market.
The analysis of risk perception of equity investors also helps the companies who are into the
business of asset management or stock broking to identify and target the appropriate market
and individuals with suitable products available in their basket.
Objectives
Limitations
• The demographic and environmental conditions of the country highly effect the results
and perceptions of the equity investors and hence, the ongoing threat of corona virus
pandemic could highly influence the decisions of the customers and investors as the
market is highly volatile as compared to regular days.
• The economy is at the verge of entering into recession which could affect the market
scenario and hence, the decisions of the investors could be biased.
• There were time constraints to gather adequate data, analyse and interpret the market
scenario and investors’ psychology.
• There was a lack in the consistency of the responses given by a few customers.
• The study could be biased because it is restricted to a certain pre-defined geographical
area that is Delhi and it could/ could not be proven true for any other city because of
the fact that the study is entirely based on psychology and psychological factors highly
depends upon culture, ethnicity, religious background and other things.
MetLife, Inc., the holding corporation for the Metropolitan Life Insurance Company,
popularly known as MetLife, was founded in 1868. MetLife is one of the largest global
providers of insurance, annuities, and employee benefit programs and asset management with
a customer base of around 90 million in over 60 countries including United States, Japan,
Europe and so on. MetLife is serving almost 90 of the World’s TOP 100 Fortune Companies
including Walmart, P&G, Pepsi, Microsoft, IBM and many more. The product variety of the
company comprises of Unit Linked Group and other traditional products which are almost half
of their basket. MetLife has always been profitable in its business apart from some ups and
downs in its trajectory of becoming successful.
PNB MetLife India Insurance Co. Ltd. was incorporated in India in 2001. It is an amalgamation
of two companies (Punjab National Bank-PNB and MetLife, Inc.) which are known to be the
leading brands of their own separate domains. PNB MetLife India Insurance Company Limited
(PNB MetLife) is one of the leading life insurance companies in India. PNB MetLife has its
major shareholding with MetLife International Holdings LLC (MIHL), Punjab National Bank
Limited (PNB), Jammu & Kashmir Bank Limited (JKB), M. Pallonji and Company Private
Limited. PNB MetLife has its presence in over 105 locations across the country with access to
over 100 million customers in more than 11,000 locations. All this could be achieved through
its strong banking partnerships with PNB, JKB, KBL and other bank partners.
The brand value and vast customer reach of PNB coupled with the expertise of MetLife in the
area of insurance makes PNB MetLife a strong and trusted brand of insurance provider. PNB
MetLife helps its customers for their entire ‘Circle of Life’ covering their 4 different stages of
life – Child Education, Family Protection, Long Term Savings and Retirement.
One of the most innovative products of this venture is ‘PNB MetLife Grameen Ashray’ which
is a micro insurance non participating term plan which focuses on short term life insurance
protection for rural market including death benefit.
1. Put Customer First: Caring for and respecting customers is core to everything PNB
MetLife does. It defines their work and shapes the culture for their people, radiating out
to their shareholders and communities.
2. Be the Best: PNB MetLife is relentless in their search for new and better ways of doing
things. Being the leader of the industry, they operate in, they try to constantly raise the
bar, take calculated risk, and learn from their mistakes and try not to repeat them by
working on them.
3. Make Things Easier: The finance industry is very volatile and complex. Hence, PNB
MetLife is always at the lookout of finding new, simpler, interactive and creative ways
to connect to the customers to provide them best solutions. They believe that they can
build trust into their customers by making things easier for them.
The company has over 15 insurance benefit plans to help its customers in all the stages of their
life from childhood till death and benefits for the family after death. These plans also come up
with riders (ad on benefits) that a customer/ investor can alter according to his/ her needs. Out
of the numerous plans, I got the opportunity to learn and work on 3 of the best plans which
PNB MetLife offers. The plans are briefed below.
1. PNB MetLife Guaranteed Income Plan- In this plan, the insured gets regular annual
income ranging from 11% to 13% of Basic Sum Assured (BSA), based on the Premium
Payment Term. Also, in addition to the guaranteed income benefit, insured get 30% to
55% of Basic Sum Assured (BSA) on Maturity, based on the policy term. The policy
also includes death benefits wherein 30% to 55% of Basic Sum Assured (BSA) on
Maturity, based on the policy term is given.
2. PNB MetLife Super Saver Plan- This participative plan comes with three different
types of plan options saving and a waive off rider can also be added under this plan.
Plan options are Savings + Family Care and Savings + Health Care Option. This plan
has maturity benefit, death benefit and critical illness add on benefit.
3. PNB MetLife Group Term Life Insurance Plan- This plan is a group term life
insurance policy that’s not only convenient but also provides cover against death and
protects the family.
There also have been studies where researchers compared and established a relationship
between risk appetite with demographics and gender. A research done by Slovic in 1999 says
that demographics is one of the most fundamental determinants of risk perception. Scholars
like Barber and Odean (2001) in their research papers concluded that gender plays an important
role while taking risks. They were of the opinion that men take more risks than women. Chen
and Volpe (2002) also discussed about the same issue where they opined that women are
considered to have less information and interest in subjects like finance and economy than men
and hence, their confidence is low while taking any kind of financial risk. They are also
considered to be largely dependent on men for finances and hence cannot take finance related
decisions on their own. However, it is observed that these studies are much conservative and
were done in past which has very less significance in current day scenario. A study,
contradicting to the above-mentioned studies, done by Wagland in 2009 on Australian
university students, proved that gender is not a significant factor in risk-taking and it also stated
that there is no connection between the genders and financial literacy. Hence, bringing down
the curtain, it could be said that many research outputs show that men are less risk averse than
women. However, our current study tries to find out if the same is the case in present day
scenario or not.
Furthermore, studies have also stated that marriage also play an important role in risk taking
psychology because it is observed that single men take more risk than those who are married.
This fact is supported by a study done by Barber and Odean (2001) which indicates that single
tend to take more risks than those who are married irrespective of the gender. However, there
is not a concrete proof to support this finding. Additionally, some studies present contradictory
statements that married investors are demonstrating more aggressive investment behaviour
than single investors and they are more willing to take risk than others. An attempt is made in
the current study to find if there is any significant relationship between marital status and
investment choices of the investor.
It has also been observed that researchers have often find it difficult to define risk tolerance
level. Nevertheless, researchers still conduct studies related to financial literacy, investment
decisions and relationship between the two. Different researchers have come up with different
theories and different results according to the demography, objective, and investment option.
A scholar concluded in his study that if we increase the knowledge and information regarding
investments in an individual then his level of risk-taking capacity also increases. And hence, it
was revealed that there is a positive relation between financial literacy and risk-taking capacity.
This research contributes to the existing literature done by eminent scholars and veterans on
risk perception in several aspects, for example, the data gathered for this research is very recent
comparing to the other reports that are mostly old. After reviewing above mentioned reports
and studies it has been identified that the direct relationship between risk tolerance and
portfolio management for the specific financial asset are not emphasised much in the reports
and I shall try to overcome the same gap.
Data Sources
Collection of data is the most essential part of this study as it gives the first-hand knowledge
about customers’ and investors’ psychology and decision making. The task of collecting data
begins after a research problem has been defined and plan is chalked out. For this study, the
research is conducted and insights are captured using both primary data such as surveys,
questionnaires, personal interviews and secondary data like data thorough review of journals,
stock market analysis, research papers etc.
Primary research is conducted by generating leads through references, personal contacts and
other sources. This is done in order to understand and analyse about the psychology of equity
investors while investing in stock market and other portfolios. This would also give an insight
about the mentality of new investors and their strategies while entering investment market. The
research was both qualitative and quantitative in nature with a mix of closed and open-ended
questions. Secondary research was also done in order to understand about the studies that are
already done and to give a background information about the topic. This was done through
magazines, books, reading journals, articles etc.
Research Approaches
There are different ways to collect primary data such as through observations like ethnographic
research, focus group, surveys, experiments, behavioural research and so on. To efficiently
fulfil the purpose of the study and gather relevant data, surveys and personal interview is used.
Survey approach is undertaken in order to assess people’s knowledge, attitudes, choices and
satisfaction related to investment choices. Surveys were conducted in malls, offices, banks and
even online. Since, our research topic is related to banking and finance a more personal survey
was conducted majorly by visiting various branches of PNB (Punjab and National Bank) in
New Delhi. In addition to this, an online survey was also conducted to gather more appropriate
data. The survey was kept short and simple so as to make it easier for respondents to understand
and answer it appropriately. Apart from the survey questionnaire, 8 personal interviews were
also done to understand more about investors psychology and decision-making techniques.
Research Instrument
Research instrument is the tool for collecting primary information through various methods
discussed above. There are three main options of research instrument that a researcher can
choose from, such as, through questionnaires, qualitative measures, and technological devices.
The research instrument that is used, in this study, to collect primary data is majorly through
questionnaires and sometimes through qualitative research options like word associations.
A questionnaire is considered to be the most flexible, structured and efficient way of collecting
primary data as it is cost and time effective. In this survey, a self-administered questionnaire is
prepared and used to gather the data from the respondents. The survey is conducted using close-
ended. A five-point likert scale is used to analyse the risk appetite of the investors. In order to
understand the various objectives for which an investor invests, rating scale was used. Other
Multiple-Choice Questions (MCQs) were also used to understand their demography and
financial literacy. Open ended questions were asked only during the personal interviews to dive
deep into the psychology of an investor. No open-ended questions were used in the
questionnaire.
Sampling
Sampling Size: It is often said that large samples are much more reliable and hence, an attempt
was made to gather as much data as possible. The data from 108 respondents residing in Delhi
were gathered. However, due to incomplete information, 8 of the responses were discarded and
100 were accepted. Hence, a sample of 100 respondents is used to complete the survey and
analysis of this report.
Risk is a personal and psychological perception of certain circumstances when you expose
yourself to a situation of danger, harm or loss. The biggest danger in finance is losing money
or not having adequate money. It is a highly personal process of making a decision based on
an individual’s frame of reference that has evolved over time. Risk appetite of an investor is
one of the most significant elements in investment opportunities. An investor behaves in the
volatile market, decides its strategies of buying and selling according to his/her risk tolerance.
Investors, brokers, institutions, firms or individuals create a portfolio keeping in mind their risk
tolerance and expected returns in accordance with the risk.
It is observed that preferences of individual investors are not based on what the conventional
finance suggests but there are various psychological, socio- cultural and environmental factors
which affect investment behaviour and choices of an individual. “Investors cannot be rational;
they can only have bounded rationality.” During the course of the research process, it is also
understood that unlike what standard finance theory suggests, investors act according to their
psychology, risk appetite and environmental conditions.
This research is strategically divided into three categories to make it easier to form conclusions
and create an easy relationship between risk perception and portfolio management. The first
part of the research is understanding individual investor on the basis of behavioural finance.
Secondly, risk perception and psychology of each individual is studied thoroughly by asking
different psychological questions related to personality and risk taking. Lastly, the risk
tolerance is calculated based on the observations about the answers given by the investor of the
questions about their personality and then analysing their portfolio choice carefully.
It is believed that most individual investor would demonstrate different risk attitude when they
face investment alternatives. Behavioural finance is the arm of finance that deals with reactions
and responses of investors on the changes happening in equity market. It also aims to
understand and answer various questions such as
By doing an experimental research with various investors and non-investors it is observed that
different investors have different risk attitude irrespective of their age, gender or income group.
In this research, an attempt is made to have a close attention towards behavioural finance,
especially in financial products choices (investment) and behaviour of individual investor
otherwise in other products for savings.
In the second part of research, it is aimed to analyse what an investor thinks about risk. Since
risk is known to have a huge impact on individual’s decision, an attempt is made to figure out
the factors that influence the degree of risk an investor is willing to take. Financial risk
tolerance is defined as the maximum amount of uncertainty that someone is willing to accept
when making a financial decision. Risk perception represents one person’s attitude towards
taking risk. To analyse the risk perception of an investor various questions regarding market
scenario is asked. Various situations were put forward in front of the respondents and were
asked about their opinions on those situations.
Various theories regarding risk perception are also studied to understand more about the risk
and perception of individuals in line with such theories. These theories explain that risk is
formed out of a person’s internal and external environment. Therefore, these theories can help
us to identify what factors worked or influenced a particular investor and in what ways.
Social Action Theory- This theory talks about peer pressure and says that people observe their
peers and if their community as a whole has a low risk perception and talk negatively about a
Bounded Rationality Theory- In this theory, it is suggested that the rationality in decision
making of a person is bounded/limited by the knowledge and information he has about the
subject. Selecting the company, deciding how many shares to buy, understanding when to buy
and when to sell a share are some of the decisions that are explained by bounded rationality
theorem.
Risk Compensation/Risk Homeostasis Theory- This theory explains that if people are given
more security in higher risk avenues, then they will take high risks. If people subjectively
perceive that the level of risk is less than acceptable then they modify their behaviour to
increase their exposure to risk. In other words, individuals tend to adjust their risk-taking
behaviour if they feel that there is some sense of safety involved in a particular investment
avenue.
Risk tolerance represents one person’s attitude towards taking risk. It could be high, low,
medium or anything. This concept is indicated as an important step that has implications for
investors and financial service providers like banks, brokers and other asset management firms.
No two individuals can have same psychological level and risk appetite. In terms of different
risk perception or risk tolerance level, individual investor may show different reaction based
upon their psychological factor and economic situation, which would lead to heterogeneous
portfolio choice for each individual investor. For this purpose, it is crucial to analyse the factors
that are affecting an investor’s risk tolerance and how these investors make their investment
choices. Here the decision making plays a vital role in this investment process, due to
investment are subject to market risk.
In General, each and every investor is associated with risk tolerance, while investing in the
stock markets. So therefore, in order to gather the data to find out how people make portfolio
decisions based on their risk appetite, ample of questions are raised like, (how to invest and
where to invest) to the investors towards risk so as to make a relation between each investor’s
risk aversion and portfolio decision. There could be millions of factors that could possibly
affect the risk tolerance level of an individual. However, for this study, experience, knowledge
and a few psychological questions are asked to understand the appetite and to form a
relationship between their choice of investment and risk-taking capacity.
A 5-point Likert scale was constructed to measure the risk appetite of individuals. To check
the reliability of the scale constructed, Cronbach’s alpha is used. Cronbach’s alpha is a measure
of internal consistency. A high value of Cronbach’s alpha means, the scale is a reliable one and
the items are collectively measuring the latent variable.
The Cronbach alpha value of our present study is 0.832 (as shown in the table 2.1), which is
considered to be a good value. Hence, it can be inferred that the scale is a reliable one and we
can go on with our study.
The scale considered for this study contains 5 items which was used to understand the risk-
taking appetite of the individuals. Since a score of 5,4,3,2, and 1 was given to the respondents
for their response of strongly agree, agree, moderately agree, disagree, and strongly disagree,
respectively, the maximum one respondent can score in each of the items is 5. Therefore, the
maximum possible score is 25 (5 × 5). Similarly, the minimum one respondent can score in
each of the items is 1 and, therefore, the minimum possible score is 5 (5 × 1). The difference
between maximum and minimum possible score is 20 (25 - 5). In order to establish the overall
risk perception at five different levels, this range 20 is then divided by 5. It is found to be 4.
Adding 4 with 5 (lowest possible score), we get 9, which becomes the very low level of risk
perception range (4 - 9). Similarly, adding 4 with subsequent value, next higher range is
obtained. Table 3.2 shows the overall risk perception level score of the scale.
Note: One item of level of experience of respondents in the stock market was excluded from
this scale construction because it was based not on strongly agree to strongly disagree but on
5-point likert scale of very high experience to no experience. Even after deleting this question,
Cronbach alpha is coming out to be 0.768 (Table 3.1) which is also a good value to consider.
The mean value of the scale statistic is found to be 15.30 which lies in the interval of 13-17
representing a moderate level of overall risk perception among individuals. (Table 3.3)
(Table 3.3)
Scale Statistics
The overall risk perceptions of the respondents are calculated by adding their score in the Likert
scale, and then its value was interpreted using Table 3.2. The overall level of risk perception is
presented in Table 3.4 below.
(Table 3.4)
Overall Risk Perception
Code Level Scale Frequency %age
1 Very Low Level of Risk 5-9 5 5%
2 Low Level of Risk 9-13 25 25%
3 Moderate Level of Risk 13-17 36 36%
4 High Level of Risk 17-21 33 33%
5 Very High Level of Risk 21-25 1 1%
Total 100 100%
Interpretation- According to the data represented in Table 3.4, it can be said that majority of
the respondents (36%) have moderate level of risk. Whereas, there are only 5 persons (5%) and
1 person (1%) for very low level and very high level of risk perception, respectively. There is
Figure 4.1 to Figure 4.5 explains about the importance of each objective on a scale of 1 to 5
where 1 being least important and 5 being the most important. As it can be seen from the bar
chart, 42 gave capital appreciation an importance of 5(Most Important). It can also be observed
that no investor invests in an asset that does not provide them protection against inflation
because no person said that protection against inflation was least important for them.
(Figure 4.1) Capital Appreciation
Capital Appreciation
45 42
39
40
NO. OF RESPONDENTS
35
30
25
20 17
15
10
5 1 1
0
Least Important Somewhat Very Most
Important Important Important Important
Capital Appreciation
For capital appreciation objective, 81% of the respondents consider it to be the most important
objective. Almost 98% of the investor invests in the avenues that promise them a capital
appreciation over the years. Only 2% of investors has given 1-2 score to capital appreciation.
It could be because of the very high-risk level of investor or the bounded rationality of the
respondent while filling the questionnaire. This implies that majority of the investors look out
Dividend
40
35
NO. OF RESPONDENTS
30 34
25 30
20
15 19
10
5 9 8
0
Least Important Somewhat Very Most
Important Important Important Important
Dividend
Regular Dividends is the most important factor for only 8% of the respondents. Maximum
number of respondents (34) feel that regular dividend is somewhat important, which means
that even if, in an investment option, there won’t be any dividend in their investment avenue,
they would not mind much.
Tax Benefits
35
29
30
NO. OF RESPONDENTS
26
25 21
20
14
15
10
10
5
0
Least Important Somewhat Very Most
Important Important Important Important
Tax Benefits
As far as tax benefits of the investment avenue is concerned, there is no pattern found. 10% of
the respondents gave it an importance level of 1( least important), 21% of the respondents feel
that having tax benefit in their investment option should be important, 29% feel that it is
somewhat important, 26% are of the view that their investment avenue should have major tax
30
30
25 20
20 16
15
10
5 0
0
Least Important Somewhat Very Most
Important Important Important Important
None out of 100 respondents want an investment that does not provide them protection against
inflation. It can be said that, every investor who invests in any kind of investment option does
so with the main motive of having protection against increasing inflation in the economy.
Hence, if any asset does not give an investor protection of inflation, he would not take it,
keeping other things constant.
Quick Gain
35 33
30 28
NO. OF RESPONDENTS
25
25
20
15
10
10
4
5
0
Least Important Somewhat Very Most
Important Important Important Important
Quick Gain
From figure 4.5, it can be inferred that 33% of the respondents are neutral about the quick gain
however 10% of the investors feel that having quick gain with their choice of investment is
most important for them. These could be the investors that have high to very high-risk
Chi square analysis test is used to check the significance of two categorical variables. In this
chi square test, it is aimed to find out if there is a significant relationship between Gender
(Male/ Female) and their choices of investment avenues (Fixed deposits/ Mutual funds/ Equity
stocks). In other words, we are analysing the dependency of one variable over other. It is
analysed whether Gender and choice of investment are independent of each other or not.
Hypothesis
Null Hypothesis- Ho: No significant relationship between Gender and Choice of Investment
Alternate Hypothesis- Ha: There is a significant relationship between Gender and choice of
investment
(Table 5.1)
Gender * Investment Choices Crosstabulation
Investment Choices
Mutual
FD/ Deposits Funds/SIP Equity Stocks Total
Gender Male Count 11 20 33 64
Female Count 9 12 15 36
Table 5.1 gives us the details about the observed frequency of males’ and females’ choices of
investment. As we can see in the table, it can be observed that there are 33 males and 15 females
investing in equity stocks. Similarly, 11% of males and 9 % of females choose FD or other safe
deposits to invest their money. Mutual Funds/ SIP (Systematic Investment Planning) have 20
and 12, Males and Females respectively. The crosstabulation gives us an overall data frequency
of the two categorical variables.
(Table 5.2)
Chi-Square Tests
Asymptotic Significance
Value df (2-sided)
Pearson Chi-Square 1.204a 2 .548
Likelihood Ratio 1.194 2 .551
Linear-by-Linear Association 1.189 1 .276
To understand the significant relationship between gender and choice of investment we will
consider Pearson Chi- Square in Table 5.2. The chi square statistic value is 1.204 and our
degrees of freedom is 2. The asymptotic significance value is our p-value which we use to test
the significance of variables. Our alpha (α) value is 0.05. Here as we can see that our α is more
than p value which is 0.548, we accept our null hypothesis which said that there is no significant
relationship between gender and their corresponding choice of investment. In other words, it is
safe to say, according to our data and analysis of chi square, that gender has no relationship
with the choice of investment options i.e. Mutual Funds, Equity Stocks and Fixed Deposits.
There could be other factors that influence the choice of avenue where individuals like to invest
but gender is not one of the significant factors. Gender plays no role on the psychology of
investors and does not contribute to the decision-making process.
In any chi-square test, a close attention has to be paid to the expected and observed values. If
the observed and expected values diverge more form each other, the chi square value likely
becomes higher. Hence, the model becomes more significant and we reject the null hypothesis
and conclude that the variables are associated with each other. In the above table (Table 6.1)
we can see that, there are more unmarried people investing in stock market as expected count
also, there are more married people investing in F.D / Deposits than the expected count.
However, it is important to analyse whether these differences are big enough to conclude that
Marital Status and Investments choices are associated with each other. This is where chi-square
statistic test comes into play.
Chi-Square statistic value is 5.275 and p-value for this analysis is 0.072 which is greater than
alpha (α) value of 0.05 which means that we will accept our null hypothesis that says that there
is no significant relationship between marital status and choice of investment. In other words,
marital status and choice of investment avenues, where investors like to invest, are independent
of each other and marital status of an investor does not influence his investment choices. Table
6.2 suggests that risk defines the choice of investment and since, table 6.2 proves that there is
no significant relationship between marital status and choice of investment, it is safe to
conclude that there is also no significant relationship between marital status and risk
perception. It cannot be said that single men/ women tend to take more risk as both these
variables are independent of each other according to our study and analysis.
(Figure 6.1)
(Table 7.1)
Investment Choices * Overall Risk Perception Level Crosstabulation
In the table 7.1, it can be seen that 5 respondents with low level of risk perception opt for Fixed
Deposits or other safe options to invest their money in. It can also be seen that no person with
low level of risk perception opt for either mutual funds or equity stocks. According to the data,
more people have moderate to high level of risk and only one person has very high level of risk
who has opted for equity stock investment option.
To check if there actually is any relationship between risk taking capacity and the choice of
investment, we run a chi-square test below.
(Table 7.2)
Chi-Square Tests
Asymptotic
Value df Significance (2-sided)
Pearson Chi-Square 94.642 8 .000
Likelihood Ratio 103.618 8 .000
Linear-by-Linear Association 65.202 1 .000
N of Valid Cases 100
Hypothesis
Ho: No significant relationship between Overall Risk Perception and Choice of Investment
Ha: There is a significant relationship between Overall Risk Perception and Choice of
Investment
The figure above (Figure 7.1) gives a pictorial representation of investment choices of people
with different level of risk perceptions. Respondents with very low and low level of overall
risk perception invest their money in safer options like fixed deposits or any other saving or
bank deposits. From the figure itself, we can identify that risky investors invest in equity stocks
(as shown with orange bar) and investors with moderate risk perception invest both in mutual
funds and equity stocks.
Scatter Plot
The survey used 5-point Likert scale to understand the overall risk perception of investors.
There were total 5 questions that were asked to understand about the risk-taking capacity of a
To check the correlation between the independent variable (Experience of an Investor in Stock
Market) on the x-axis and dependent variable (Overall Risk Perception) on y-axis, the scatter
plot is used. The R² value tells us the relation between 2 variables in the scatter plot. R-squared
values range from 0 to 1 and are commonly stated as percentages from 0% to 100%. It indicates
the percentage of the variance in the dependent variable that the independent variables explain
collectively. R-squared measures the strength of the relationship between your model and the
dependent variable. In this case, R² is 0.605 i.e. 60.5% which indicates that experience of an
investor accounts for 60.5% variance in overall risk perception of an investor. Thus, it can be
concluded that experience is a good predictor of risk perception. In the scatter plot, it can also
be noted that as experience level increases in the scale, the risk perception also increases which
indicates linearity in the data. The slope indicates that the variables are positively related
wherein increase in one variable leads to increase in the other variable.
Regression Analysis
(Table 8.1)
Variables Entered/Removeda
Model Variables Entered Variables Removed Method
1 Level of Experience in . Enter
Stock Market
a. Dependent Variable: Overall Risk Perception Level
b. All requested variables entered.
In the Model Summary, adjusted R² shows the percentage of variance in the dependent variable
or outcome variable that can be explained by the independent variable or predictor variable i.e.
60.1% of risk perception can be explained by experience in the stock market. The correlation
between the 2 variables is also explained above in the scatter plot.
(Table 8.3)
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 49.594 1 49.594 149.977 .000b
Residual 32.406 98 .331
Total 82.000 99
a. Dependent Variable: Overall Risk Perception Level
b. Predictors: (Constant), Level of Experience in Stock Market
Anova table lets us know if our model is a significant model i.e. it tells if the predictor variable
a good predictor of outcome variable which in this case is overall risk perception. This is
determined by looking at the significance value in the Anova table which is .000 which is less
than alpha(α) 0.05, therefore it can be said that the model is significant. F (1,98) = 149.977,
p=0.00
The p-value here is not zero but the value is so small that it is represented by 0.00 and hence
smaller than alpha(α).
(Table 8.4)
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
In the coefficient table, the equation for the predictor to predict consumer satisfaction from
online services is (Y=0.84+0.72x), this linear regression equation best risk perception level
from the predictor which is experience in stock market. To determine whether the online
services variable is significant to predict consumer satisfaction, the significance value is
referred and it is .000 which makes the model significant(P<0.05).
Thus, the requirement of correlation between the variables is satisfied from the scatter plot and
the statistical significance of the model is proved in Anova table along with the significance of
the predictor in coefficient table. The model is significant and hence it can be concluded that
with an increase in the experience of an investor in the stock market, his overall risk perception
also increases and vice versa.
Financial literacy is also one of the most important aspects that forms psychology of an investor
and affects the decision-making process of investors. 4 questions were framed (Rooji and
Lusradi, 2011) in the questionnaire on concepts related to finance such as time value of money,
inflation, compounding etc. (Refer box 1 in Annexure). Those questions were asked to check
the ability to do basic calculations of finance, to check the understanding of investors on how
compounding works, and how familiar are they with the concept of time value of money.
Q1 Q2 Q3 Q4
Do not know 1% 8% 5% 9%
It was observed as shown in the table 9.1, that majority of the respondents could answer first
question correctly. The percentage of incorrect answer for the first question was just 7% which
means only 7 respondents out of 100, did not give the correct answer or did not know the
answer. So, it can be said that 93% of the respondents could do basic calculations on simple
interest. Also, as we move forward with the questions it was observed that very less people
could correctly answer the questions on money illusion and inflation rates. Additionally, there
were 44% of the respondents who gave all the answers to 4 questions correctly. It was also
However, since only 44% of the respondents gave all the correct answer to the question, we
can conclude that basic to advance level of financial literacy is not widespread.
Out of the 100 respondents’ data that is collected through questionnaires, 8 of these responses
are through personal interviews. Out of these total 8 interviews, 5 are conducted face to face
and 3 are telephonic. 6 professional investors and 2 non investors, who have very little
knowledge of stock market but are keen on investing, are selected to conduct the interview.
Since, open ended questions that were asked, apart from getting the questionnaire filled, could
not be coded, an attempt is made to analyse those responses without any software or numerical
representation.
Below is the demography of the respondents to make it easier for us to analyse about their
perception and to understand if demography has any role to play in risk perception and their
choice of investment.
Note: The risk perception is taken from table 3.2 by adding their overall score of risk perception
from the questionnaire.
During the interview process with these investors, it was observed that every investor has a
high-risk perception due to the experience they have in stock market. One of the investors was
of the view that, educational qualification does not influence the level of risk and choice of
investment as that investor himself was not from a finance background and although he was
graduated but he had no clue about financial markets. He started investing in long term assets
When asked about their feelings on huge loses in the stock market, 5 out of 6 investors said
that they learn from their loses and try not to commit the same mistake again to increase their
profits. 1 respondent said that he tries to play safe even if he invests in extra risky assets in
stock market. It was also observed that, apart from thorough research about company’s stocks,
trend analysis and annual reports, investors also trust their gut feeling and invest in stocks that
they think will prove fruitful for them, even if it is highly risky. Loss aversion (a personality
bias) explains that investors either avoid taking too much risk or they prefer to take more risk
if they believe that they will gain more from an uncertain situation. This bias seems to be
dominant in most of the investor’s personality as it was observed that investors invest in risky
assets if they feel that there will not be much loss in the investment.
Furthermore, these investors do not believe that demography on an investor plays any role in
equity market. In other words, gender, marital status and educational qualifications is not
significantly important in risk taking capacity of an individual. However, some of them do
believe that with age and experience, the risk-taking capacity also increases.
Additionally, while analysing and understanding the behaviour and psychology, it was
observed that some of the investors understand that they have a bounded rationality and their
decision-making process is biased due to social, economic or cognitive factors.
A short yet insightful interview was conducted with two non-investors to understand their
psychology and make inferences on how people with no experience with finance take
decisions.
Though both of the respondents do not have any actual experience in stock market, yet the
question was raised as to how the 2nd respondent has higher risk and it was observed that the
person uses various websites and apps like money control/ dalal street to have a real life
experience of how stock markets operate. The respondent with score of 3 in overall risk
perception is highly affected and influenced by his external environment that is his friends,
family and relatives (as said by the respondent himself). He tries to learn from virtual trading
apps before actually jumping into the actual stock market. His interest in stock market
developed due to his surrounding where he saw that people invest in various assets (not just
Moreover, in case of respondent no. 1 also, it was observed that he formed his mindset that
risky assets usually end up giving losses, because this is what happened to some of his
colleagues or friends and hence, his overall risk perception became negative without even
actually participating in financial markets. It was also observed that overall financial literacy
level for both of them was low as they did not know the answers to a few questions on time
value of money, inflation or interest rates that were asked to them to understand about their
knowledge on finance related subjects.
2. The decision-making process is complicated and does not only depend on risk- return
relationship. People make decision based on the importance of the objectives as well.
The objectives could be tax savings, capital appreciation, dividends etc. Investors who
look for tax saving options do not trade and keep their investment for long term or they
invest in fixed deposits where they do not have to pay extra tax on the appreciation.
Capital appreciation is one of the most important objectives for all the investors. Also,
very few investors find it important to have a quick short-term gain on their investment
avenue.
3. It is also observed that demographic identity of an individual like age, marital status
and gender does not affect the choice of investment of an individual. However,
experience and financial literacy do have a significance on the level of risk of an
investor and his choice of investment avenue. The results are inconsistent with the
previous study done by Chen and Volpe (2002) and Barber and Odean (2011) who
opined that gender plays an important role in decision making.
5. Cognitive dissonance of an investor plays a major role in selecting the investment type.
As we could conclude from the personal interviews, investors often find themselves in
dilemma as to which investment option to choose from. In this case, majority of them
said that more than their knowledge, they believe on their gut feeling.
6. When asked investors about the thoughts that come to their mind when they think about
stock market, major responses were that they feel stock markets give them huge returns
in the way of dividends and capital appreciation. Moreover, non-investors feel that they
would like to give a chance in stock market if they are given proper knowledge about
stocks, assets and trading by their stock brokers. Individuals also trust more on their
stock brokers than their own knowledge and research on equity market.
7. One major fact that is observed while taking interviews was that people with high or
very high level of risk appetite also invest in other safe avenues like government bonds,
2. Efforts should be made to popularise equity markets through various social media
measures and create awareness as some people think that taking high risk would mean
less returns. Efforts could be made to make people understand that in long run, the
chances of loss become highly negative.
3. More new studies should be conducted to understand about latest relationship between
demography, risk taking appetite and choice of portfolio as the available studies have
become outdated and does not align with my study of investors where there is no
relationship between gender, marital status and risk perception.
• Aman
• Bobby
• Both are equally rich
• Do not know
Q4. If interest rate on your savings account is 1% per year and inflation rate is 2% per year.
After 1 year how much will you be able to buy with the amount in your account?