Professional Documents
Culture Documents
SSRN Id3434233
SSRN Id3434233
Author’s name
First Author: Dr Kamini Khanna (Associate Professor)
Second Author: Mrs Veena Chauhan (Assistant Professor)
Bharati Vidyapeeth Institute of Management studies &
Research (BVIMSR) Navi –Mumbai
Email : Kaminiptk@gmail.com
Contact no: 09869202874
Abstract:
This research is an attempt to explore the association between various demographical
factors, risk profile and investment decision of retail investors. All measures were tested for
reliability through computation of Cronbach’s Alpha. The Alpha coefficient value was found
0.741 for variables like wealth, risk profile asset class, fixed return, mutual fund return,
equity, real estate and gold commodity. Further, the chi-Square and crammer-v statistics has
been used to interpreting the association between these factors. And it revealed that the
investors do not always behave rationally and their choice of investments is decided by their
risk profile and other demographical factors such as age, gender, income, wealth etc. This
research is also useful for portfolio managers to construct the right portfolio for the investors
according to their needs and preferences.
Introduction
Portfolio management is the art and science of making decisions about investment mix and
policy, matching investments to objectives, asset allocation for individuals and institutions,
and balancing risk against performance. Portfolio management refers to managing an
individual’s investments in the form of bonds, shares, cash, mutual funds etc. so that he earns
the maximum profits within the stipulated time frame. Portfolio management is all about
strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs.
international, growth vs. safety, and many other trades-offs encountered in the attempt to
maximize return at a given appetite for risk. Investors differ in their risk profile or the
willingness to take risk, which in turn depends on their demographic factors and financial
literacy. A rational investor invests in different asset classes according to his respective risk
profile. Following are the different types of risk profiles and the asset classes considered for
the study.
On the basis of the risk profile the investors can be categorized in the following types:
Conservative investors:
Do not like to take risks with their investments. New to risky products.
Prefer to keep their money in the bank or fixed return instruments.
Balanced/Average investors:
Aggressive investors:
Highly experienced investors who are willing to take extreme risks with their money.
They invest their money in a high proportion in risky assets. Investments in safe
instruments are lower.
ASSET CLASSES:
A group of investments that exhibit similar risk and return characteristics, and respond in a
similar fashion to economic and market events are grouped together as an asset class.
Based on the return and risk attributes, financial assets or investment options can be broadly
classified into the following asset classes: Equity, Fixed return instruments, Mutual funds and
insurance, Gold and other commodities and Real estate.
Following are the list of different asset classes with respect to its various attributes:
On the basis of above mention objective, the following hypothesis have been formulated
Hypotheses:
H1: There is significant association between risk profile and preferred asset class.
H4: There is significant association between risk profile and income of investors.
H5: There is significant association between risk profile and wealth of investors.
H6: Tis significant association between age and preferred asset class.
H8: There is significant association between income and preferred asset class.
RESEARCH METHODOLOGY
RESEARCH DESIGN
The study was exploratory in nature and survey method was used to complete the study. The
population of the study comprised retail investors of Mumbai region. The study was
conducted with a sample of 50 respondents from various walks of life. Any person who earns
and invests was considered for the study irrespective of their profession but with reasonable
knowledge of the financial instruments available in the market. A non-random sampling
specifically quota sampling was utilized. For data collection, a self-designed questionnaire
was administered. The questionnaire had a five point likert scale, where 1 indicated
conservative investor and 5 aggressive investor. The general demographic factors such as
age, gender, income, wealth, asset classes have been considered to explore its association
with investment choices. The collected data was subjected to analysis through SPSS. The
reliability was determined through Cronbach Alpha. The validity was established through
Face validity method. Further, the chi-Square and statistics has been used to interpreting the
association between various demographic factors, risk profile and investment choice of the
investors. Further, to determine the strength of a relationship crammer-v statistics has been
used.
Sample Description
The data was collected in the month of June –July 2016. The following sample
descriptive will be of value in understanding the sample characteristics. The demographic
variables on which data taken was from the respondents were Gender, Age and Family
Income (Table 1.1 to 1.3)
Table1.1
Gender
Frequency Percent Valid Percent Cumulative Percent
Out of the total respondents 18 belonged to the 31-40 years category followed by 17
belonging to under 30 years category.11 belonged to 41-50 years category and only 4
belonged to above 50 years category.
Table1.2
Age
Frequency Percent Valid Percent Cumulative Percent
Table 1.3
Income
. Majority of the respondents i.e. 24 belonged to the 5-10 lacs category followed by 15
respondents in less than 5 lacs. Only 11 respondents belonged to above 10 lacs category.
Reliability
Reliability for the questionnaire was calculated through SPSS. The statistics came out as:
Table 1.4
Reliability Statistics
.720 8
It is considered that the reliability value more than (0.7) is good and it can be seen that in
statistics, reliability value was (.720) slightly higher than the standard value, so all the items
in the questionnaire are reliable. Hence, no changes were done to the questionnaire and all the
items were retained for further analysis.
Validity
Validity was checked through face Validity Method and found to be high.
The prime objective of the study is to explore association between risk profile of investors
and their investment choice and also the association between demographical factors and risk
profile are depicts in Table 1.5. This has been performed with the help of SPSS by using Chi-
Square and crammer v statistics analysis.
Table 1.5
A Table Showing Consolidated Statistical Summary For Testing of Hypothesis
Chi- Hypothesis
Sr. P- Cramer
Hypothesis Square Strength Accepted/
No Value V
Value Rejected
H1: Preferred asset class of the investors is found to be associated with the risk profile of
the investors (0.008) and it revealed a moderate association between variable (p value
0.422). Aggressive investors preferred direct equity to other instruments whereas
moderately conservative investors preferred fixed return instruments. Moderate investors
have instruments spread across in a balanced way but more preference is to fixed return
instruments than other instruments. Moderately aggressive investors have investment
spread across all instruments but more preference is given to direct equities.
H2: Gender of the investors is found to be associated with the risk profile of investors (p
value 0.05) but it revealed a weak strength. Aggressive investors are all males there are
no aggressive female investors. Majority of females come in the other category. Majority
of the males come in moderate investors, moderately aggressive and aggressive category.
H3: Age of the investors is found to be not associated with the risk profile of theirs (p
value 0.071). Majority of young investors are in the moderately conservative and
moderate investors’ category. Whereas mid age investors are in the moderate investor and
moderately aggressive category
H4: Income of the investors is found to be associated with the risk profile of investors
(0.00 significant levels). Further, it was found that there is strong association (0.813).
This may be due to, all the aggressive investors have income of more than 8 lacs,
moderately conservative investors have income less than 5 lacs, majority of moderate
investors have income less than 8 lacs and majority of moderately aggressive investors
have income of more than 5 lacs.
H5: Wealth of the investors is found to be associated with the risk profile of the investors
(0.002 and strong association 0.647).
H6: Age of investors is found to be not associated with preferred asset class (0.754).
Fixed return instruments are most preferred even in ‘less than 30 years’ category whereas
direct equity is not much preferred even in ‘less than 30 years ‘and ‘31-40 years’
category. Even mutual funds don’t have many takers across all age groups.
H7: Gender of investors is found to be associated with preferred asset (0.028) and found
to be moderate association. Majority of females prefer fixed return instruments whereas
majority of males prefer direct equity. Males have more preference to real estate and gold
H8: Income is found to be not associated with the preferred asset class (0.539) and
depicted weak association. Majority of investors in all income groups prefer fixed return
instruments whereas number of investors in equity is not high across high income groups.
Thus, from the above analysis, it revealed that Risk profile of an investor does helps
to ascertain their preferred investment choice. Risk profiling has been found to be
helpful in understanding how the investors take decisions regarding their investments.
It also states that how demographic factors coupled with risk profile influence the
investors’ decision making.
There is significant association between risk profile and income of investors. This hypothesis
shows a significant and strong association. If we want to see the more meaningful result by
adding one more variable i.e., age with these two variables (risk profile and income of
investors). With the help of layer analysis, we found that it plays an important role among
risk profile and income with respect to investment decision. It showed that among all the age
group only 31-40 have a significant association (0.00 p value) with risk profile and income
(table 1.6). And also showed a strong association i.e. 0 .825 (crammer v). So in this way we
can say that, moderately aggressive investor plays a significant role for making the portfolio
investment.
Table 1.6
Implications
The study intended to be a useful contribution in understanding the different aspects of
portfolio management which is an important part of wealth management. The present study
helped to understand how investors behave with regards to investment products and what
factors influences the investors in making their investment decisions and how closely these
factors associated with the investment decisions are. Apart from this it can serve as a guide to
a common man.
CONCLUSION
From this study it can be concluded that investors do not always behave rationally and their
choice of investments is decided by their risk profile and other demographical factors such as
age, gender, income, wealth etc. The study helped in finding out association between the
asset classes and demographical factors and risk profile. It also helped in stating the benefits
of risk profiling in understanding the investors behaviour. Risk profiling does come in handy
while ascertaining the right investment products for the investors.
References
1. Anne-Marie Pålsson (1996): Does the degree of relative risk aversion vary with
household characteristics?
2. Melanie Powell,, David Ansic (1997): Gender differences in risk behaviour in
financial decision-making: An experimental analysis.
3. Chaulk, Barbara; Johnson, Phyllis J.; Bulcroft, Richard (2003): Effects of Marriage
and Children on Financial Risk Tolerance: A Synthesis of Family Development and
Prospect Theory
4. Hanna, S. & Chen, P. (1997): Subjective and objective risk tolerance: Implications
for optimal portfolios.
5. Sharon Collard (January 2009): Individual investment behaviour:
A brief review of research