PIONEER INSTITUTE OF PROFESSIONAL STUDIESINDORE

Diligence & Excellence(Since 1996)

SESSION(2014-2016)

ASYNOPSIS OF

MAJOR RESEARCH PROJECTON

“A Comparitive Study on Risk Tolerance Level of Business class and Service Class Investors With Reference to Indore City”

GUIDED BY: SUBMITTED BY:Dr. Prashant Jain Shubham Bhatewara MBA III Sem.

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ACKNOWLEDGEMENT

It is my proud privilege to release the feeling of our gratitude to several people

who have helped us directly or indirectly to conduct this project work.

I am greatly thankful and owe a deep sense of gratitude to my faculty guide Dr.

Prashant Jain, for his sincere guidance, help and valuable suggestions in

completing this project work.

I would love to express our gratitude to respected Dr. P.K. Jain for his moral

support and encouragement. Last but not the least our deepest sense of

appreciation goes to our parents who were always there as a source of

inspiration.

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DECLARATION

I hereby declare that the research report on “A Comparitive Study on Risk

Tolerance Level of Business class and Service Class Investors With

Reference to Indore City” is authenticating as per our knowledge and work

outcome of our own job. This report in any form has not been submitted to any

other institute or university for any degree or similar award.

PROJECT GUIDE NAME OF THE STUDENTS

Dr. Prashant Jain Shubham Bhatewara MBA III Sem.

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CERTIFICATION

This is to certify that the report entitled “A Comparitive Study on Risk

Tolerance Level of Business class and Service Class Investors With

Reference to Indore City” in Pioneer Institute of Professional Studies, i.e.

being submitted by us in partial fulfillment of the requirement for the major

research project as a part of curriculum of MBA 3rd semester under the guidance

and supervision, the result embodied in this dissertation has not been submitted

to any other university or institution for the award of any degree or diploma.

Name of the Guide Signature of the Guide

Dr. Prashant Jain …………………………………….

Date …………………………………….

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TABLE OF CONTENTS:

Sr. No. Particulars Page No.

1. Introduction

2. Rationale

3. Literature Reviews

4. Objectives of the Study

5. Research Methodology

6. Expected Outcomes

7. References

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1. Introduction

Risk tolerance, a person’s attitude towards accepting risk, is an important concept that has

implications for both financial service providers and consumers. For the latter, risk tolerance

is one factor which may determine the appropriate composition of assets in a portfolio which

is optimal in terms of risk and return relative to the needs of the individual (Droms, 1987). In

fact, the well-documented home country bias of investors may be a manifestation of risk

aversion on the part of investors (see Cooper & Kaplanis, 1994 and Simons, 1999). For fund

managers, Jacobs and Levy (1996) argue that the inability to effectively determine investor

Financial Services Review 13 (2004) 57–78 1057-0810/04/$ – see front matter © 2004

Academy of Financial Services. All rights reserved. risk tolerance may lead to homogeneity

among investment funds. Furthermore, Schirripa and Tecotzky (2000) argue that the standard

Markowitz portfolio optimization process can be optimized by pooling groups of investors

together with different attitudes to risk into a single efficient portfolio that maintains the

groups average risk tolerance.

Despite its importance in the financial services industry, there remain some unresolved

questions with respect to the “determinants” of risk tolerance.1 Although a number of factors

have been proposed and tested, a brief survey of the results reveals a distinct lack of

consensus. First, it is generally thought that risk tolerance decreases with age (see Wallach &

Kogan, 1961; McInish, 1982; Morin & Suarez, 1983; Palsson, 1996), although this

relationship may not necessarily be linear (see Riley & Chow, 1992; Bajtelsmit &

VanDerhai, 1997). Intuitively, this result can be explained by the fact that younger investors

have a greater (expected) number of years to recover from the losses that may be incurred

with risky investments. Interestingly, there is some suggestion that biological changes in

enzymes due to the aging process may be responsible (see Harlow & Brown, 1990). More

recent research, however, reveals evidence of a positive relationship or fails to detect any

impact of age on risk tolerance (see Wang & Hanna 1997; Grable & Joo, 1997; Grable &

Lytton, 1998, Hanna, Gutter, & Fan, 1998; Grable 2000, Hariharan, Chapman, & Domian,

2000; Gollier & Zeckhauser, 2002).

A second demographic that is frequently argued to determine risk tolerance is gender, and

Bajtelsmit & Bernasek (1996), Palsson (1996), Jianakoplos and Bernasek (1998), Bajtelsmit,

Bernasek and Jianakoplos (1999), Powell and Ansic (1997), and Grable (2000) find support

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for the notion that females have a lower preference for risk than males. Grable and Joo (1999)

and Hanna, Gutter, and Fan (1998), however, find that gender is not significant in predicting

financial risk tolerance.

Education is a third factor that is thought to increase a person’s capacity to evaluate risks

inherent to the investment process and therefore endow them with a higher financial risk

tolerance (see Baker & Haslem, 1974; Haliassos & Bertaut, 1995; Sung & Hanna, 1996).

However, Shaw (1996) derives a model that suggests an element of circularity in this

argument, as the relative risk aversion of an individual is shown to determine the rate of

human capital acquisition.

Income and wealth are two related factors that are hypothesized to exert a positive

relationship on the preferred level of risk (see Friedman, 1974; Cohn, Lewellen, Lease &

Schlarbaum, 1975; Blume, 1978; Riley & Chow, 1992; Grable & Lytton, 1999; Schooley &

Worden, 1996; Shaw, 1996; Bernheim et al., 2001). For the latter, however, the issue is not

clear cut. On the one hand, wealthy individuals can more easily afford to incur the losses

resulting from a risky investment and their accumulated wealth may even be a reflection of

their preferred level of risk. Alternatively, wealthy people may be more conservative with

their money while people with low levels of personal wealth may view risky investments as a

form of lottery ticket and be more willing to bear the risk associated with such payoffs. This

argument is analogous to Bowman’s (1982) proposition that troubled firms prefer and seek

risk.

Investigation of the investment decisions made by married individuals presents a unique

challenge to researchers, as the investment portfolio of the couple may reflect the combined

risk preferences of the couple (Bernasek & Shwiff, 2001). The available evidence suggests

that single investors are more risk tolerant (Roszkowski, Snelbecker, & Leimberg, 1993) 58

T.A. Hallahan et al. / Financial Services Review 13 (2004) 57–78 although some research has

failed to identify any significant relationship (McInish, 1982;Masters, 1989; Haliassos and

Bertaut, 1995).

The purpose of the current article is to provide evidence as to the behavior and

“determinants” of risk tolerance. In addition to an analysis of the relationship between risk

tolerance and general demographics, special attention shall be given to issues surrounding

age and marital status. To this end, a database has been compiled that consists of a

psychometrically derived financial risk tolerance score (RTS) for over 20,000 surveyed

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individuals as well as each respondent’s demographic characteristics. This data shall be

analyzed to provide further empirical insights into the nature of financial risk tolerance.

The remainder of this article proceeds as follows. Section 2 details the risk tolerance database

and sample used in this paper. Section 3 presents the results of econometric analys is into the

determinants of risk tolerance as well as some observations as to the nature of risk tolerance.

BUSINESS CLASS INVESTOR

Business Class immigrants are people who can apply for immigration to Canada because

they can start, or invest in, businesses in Canada. Business Class immigrants are expected to

support the development of a strong and prosperous economy in Canada. The Business

Immigration Programs have been established to attract people experienced in business to

Canada.

Business Class immigrants are selected based on their ability to become economically

established in Canada.

These are the three classes of Business Class immigrants:

Investors

The Immigrant Investor Program attracts money and experienced people to Canada. Investors

must prove that they have business experience, a minimum net worth of CAD$800,000 and

make an investment of CAD$400,000.

Entrepreneurs

The Entrepreneur Program attracts experienced people who will own and actively manage

businesses in Canada that will contribute to the economy and create jobs. Entrepreneurs must

demonstrate business experience, a minimum net worth of CAD$300,000 and are subject to

conditions upon arrival in Canada.

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Self-employed Persons

Self-employed Persons must have the intention and ability to create their own employment.

They are expected to contribute to the cultural or athletic life of Canada. They may create

their own employment by purchasing and managing a farm in Canada.

Salaried Investors

The respondents of this study consist only the people those who are earning their money as

salary, popularly referred as salaried groups It is observed that the salaried group will always

differs in their investment pattern due to safety, security, regular income, retirement benefit

and other unique features than the other occupation people like business man and

professionals.

Investment Options Available

There are a large number of investment instruments available today. To make our lives easier

we would classify or group them. In India, numbers of investment avenues are available for

the investors. Some of them are marketable and liquid while others are non-marketable and

some of them also highly risky while others are almost risk less. The people has to choose

Proper Avenue among them, depending upon his specific need, risk preference, and return

expected Investment avenues can broadly categories under them following heads:

1. Equity

2. FI Bonds

3. Corporate Debenture

4. Company Fixed

5. Bank Fixed

6. PPF

7. Life Insurance

8. Post Office-NSC

9. Gold/Sliver

10. Real Estate

11. Mutual Fund

12. Others

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Elements of Investments

A. RETURN: Investors buy or sell financial instruments in order to earn return on them. The

return includes both current income (current yield) and capital gain (capital

appreciation).

B. RISK: Risk is the chance of loss due to variability of returns on an investment. In case of

every investment, there is a chance of loss. It may be loss of investment; however

risks and returns are inseparable.

C. TIME: Time is an important factor in investment. Time period depends on the attitude of

investors who follow a buy & hold policy.

A serious minded investor will have to consider the following important categories of

investment opportunities:-

Protective investments.

Tax oriented investment.

Fixed income investment.

Speculative investment.

Emotional investment.

Growth investment.

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RATIONALE:

The concept of risk tolerance is two fold. First, it refers to your personal desire to assume risk and your comfort level with doing so. This assumes that risk is relative to your own personality and feelings about taking chances. If you find that you can't sleep at night because you're worrying about your investments, you may have assumed too much risk. Second, your risk tolerance is affected by your financial ability to cope with the possibility of loss, which is influenced by your age, stage in life, how soon you'll need the money, your investment objectives, and your financial goals. If you're investing for retirement and you're 35 years old, you may be able to endure more risk than someone who is 10 years into retirement, because you have a longer time frame before you will need the money. With 30 years to build a nest egg, your investments have more time to ride out short-term fluctuations in hopes of a greater long-term return.

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LITERATURE REVIEWS:

(Philmore Alleyne and Tracey Broome, 2010) The study revealed that subjective

norms, attitudes, behavioral control and risk prosperity were significant investment

intentions. The study used a cross-sectional design using a survey questionnaire. The

sample size was 140 from undergraduate university students in a final year business

course. The risk prosperity did not make the relationship between the predictors and

intentions to invest. The study concluded that attitudes and referent groups (family

and significant others) and potential obstacles and opportunities significantly

predicted intentions to invest. The influence of friends and relatives and easy access to

fund were significant predictors of investment intentions among students.

(Ndiege Clement, 2012) The study revealed that a majority of teachers in Kisumu

Municipality would prefer investing in other assets classes such as real estate. The

target population was two thousand five hundred and thirty teachers. Data was

collected using questionnaire and subsequently analyzed using descriptive statistics.

In the result of study only a small percentage 28% of the target population had

invested in the stock market. Among behavioral factors, they depicted by decision to

invest based on popular opinion, high demand and friends and co-workers

recommendation. Investors try to make rational decisions but due to limited cognitive

capacity they fail to analyze the data. They neither make forecast for returns nor

weigh against measured risks. Most investor not pays attention to the forecasting. In

the absence of forecast and not known models for forecast, investors use rule of

thumb for decisions.

(Piotr Bialowolski and Dorota Weziak-Bialowolska, 2013) The study revealed that

the importance’s of certain factors on the investment decision among polish

companies. The study conducted from 2009-2012. The study was based on individual

survey data from a set special question comprised in the survey. The study examines

factors influencing investment decisions of companies in Poland. The results showed

first the problem of polish companies, its importance decreases when analyzed

simultaneously. Second there were two driving forces determining the investment.

Third the investment decision associated with macroeconomic and investment

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reductions. The study concluded that a company facing higher investment reductions

was also more prone to notice and value the factors influencing these decisions.

(Narang Somil, 2007) The study revealed that the weight of factors which affect the

investment decision in decision making process. In research the online questionnaire

survey was conducted. The questionnaire sent to 600 staff member from different

departments and also sent to MBA cohort. In the result they got 66 responses to this

questionnaire. The T-test was used for analyzing the data. The study uses factor

analyses to understand the factor affecting decision of people of different income

profile. The study concluded that factors such as public transport, number of

bedrooms, location and value for money were highly affected by lower income group

and higher income group.

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OBJECTIVES OF THE STUDY:

To choose the most suitable investment options for the Busness class and Service Class Investors

To determine and compare the Risk Tolerance Level of Busness class and Service Class Investors

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RESEARCH METHODOLOGY:

A Research design is a specific procedure for conducting and controlling the research project.

Every marketing research must explicitly state its plan about collection and analysis of data.

It is the conceptual framework within which the study is conducted and deals with the

procedures used in the study for the purpose of investigation

Research Type: The study is exploratory based Study

Population: All the business class and service investors

Research Unit: All the business class and service investors of Indore City

Sample Size: Sample of 25 Business Class and 25 Service class Investors will be selected for the study purpose

Sampling Method: Non-Probability Convenience Sampling

Tools for data collection: Primary data will be collected through self structured questionnaire. Secondary data will be collected from the websites, research journals, internet, books, newspapers, periodicals, research papers, research articles, magazines, etc.

Tools for Data Analysis: T test, Co-relation Regression either of this to.

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EXPECTED OUTCOMES:

The study will reveals behavior of business class and service class investors. It will also

help the financial institutions while making the product by knowing investment pattern.

The study will also aid companies to design financial product according to the need of the

investors.

The research work will help in determining the participative role of male and female and

also examine who is most influential while taking the investment related decisions

The research also aid in understanding the risks bearing capacity of business and service

class investors according to their demographic variables and which affect the most whiles

selecting the investment avenues.

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REFERENCES:

1. Patel, Yogesh P., & Patel, Charul Y. (2012). A study of investment perspective of

salaried people (private sector) IRJC Asia Pacific Journal of Marketing &

Management Review Vol.1 No. 2.

2. Alleyne, P., & Broome, T. CENTRAL BANK OF BARBADOS

3. Ndiege, C. O. (2012). Factors influencing investment decision in equity stocks at the

Nairobi securities exchange among teachers in Kisumu municipality, Kenya (Doctoral

dissertation).

4. Piotr Bialowolski and Dorota Weziak-Bialowolska (2014). External Factors Affecting

Investment Decisions of Companies. Economics: The Open-Access, Open-Assessment

E-Journal, 8 (2014-11): 1—21. 

5. Narang, S. (2007). Investigating the factors affecting the investment decision in

residential development (Doctoral dissertation, University of Nottingham).

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QUESTIONNAIRE

Dear Respondent, I am Shubham Bhatewara student of MBA III semester from Pioneer Institute of Professional Studies Indore; I am carrying out the Majnor research project my topic is A Comparitive Study on Risk Tolerance Level of Business class and Service Class Investors With Reference to Indore City. Your experience and opinion are highly valuable and I would be very Grateful if you would spare a couple of minutes to take part in this survey by completing the questionnaire below. I assured that your this data is only use for academic purpose.

Personal Details

Name : ……….………………………………………….................……

Occupation : Salaried Business

Educational Qualification :…….…………………….................…………………………….

Annual Income: : Below Rs.2,00,000 Rs.2,00,000-4,00,000

Rs.4,00,000-6,00,000 Above Rs.6,00,000

Gender : Male Female

Age (in years) : 18-30 yrs 31- 40 yrs 41-50 yrs 50 & above

Contact No. (Optional) : …........……………………………………..................…………

Please answer all the questions by circling one of the options. Choose the option that best indicates

how you feel about each question. If none of the options is exactly right for you, choose the option

that is closest to you.

1. Are you aware of the following investment avenues? (Tick which ever applicable in the

boxes).

A) Safe/Low Risk Investment Avenues:

Savings Account. Bank Fixed Deposits, Public Provident Fund,

National Savings Certificates.

Post Office Savings. Government Securities.

B) Moderate Risk Investment Avenues:

Mutual Funds, Life Insurance. Debentures. Bonds.

C) High Risk Investment Avenues:

Equity Share Market. Commodity Market. FOREX Market.

D) Traditional Investment Avenues:

Real Estate (property), Gold/Silver. Chit Funds.

E) Emerging Investment Avenues:

Virtual Real Estate. Hedge Funds. Private Equity Investments. Art and

Passion.

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2. What do you think are the best options for investing your money? (Choose from above list, Rank in the order of preference)

1.

2.

3.

4.

3. Compared to others, how do you rate your willingness to take financial risks ?1 Exteremely low risk taker.

2 Very low risk taker.

3 Low risk taker.

4 Average risk taker.

5 High risk taker.

6 Very high risk taker.

7 Extremely high risk taker.

4. How easily do you adapt when thing go wrong financially ?

1 Very uneasily.

2 Somewhat uneasily.

3 Some what easily.

4 Very easily.

5. When you think of the word “risk” in a financial context, which of the following words come

to mind first ?

1 Danger.

2 Uncertainity.

3 Opportunity.

4 Thrill.

6. Have you ever invested a large sum in a risky investment mainly for the ‘Thrill’ of seeing

whether it went up or down in value ?

1 No.

2 Yes, very rarely.

3 Yes, somewhat rarely.

4 Yes, somewhat frequently.

5 Yes, very frequently.

7. If you had to choose between more job security with a small pay rise and less job security

with a big pay rise, whichwould you pick?

1. Definitely more job security with a small pay rise.

2. Probably more job security with a small pay rise.

3. Not sure.

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4. Probably less job security with a big pay rise.

5. Definitely less job security with a big pay rise

8. What degree of risk have you taken with your financial decisions in the

past?

1.Very small.

2. Small.

3. Medium

4. Large.

5. Very large.

9. What degree of risk are you currently prepared to take with your financial

decisions?

1.Very small.

2. Small.

3. Medium

4. Large.

5. Very large.

10. Insurance can cover a wide variety of life’s major risks – theft, fire,

accident, illness, death, etc. How much cover do you have?

1. Very little.

2. Some.

3. Considerable.

4. Complete.

11. In general, how would your best friend describe you as a risk taker?

1. A real gambler.

2. Willing to take risks after completing adequate research.

3. Cautious.

4. A real risk avoider.

12. What is your source of investment advice?

Newspapers News Channels

Family or Friends Books

Internet Magazines

Advisors

Certified Market Professional/Financial Planners

…………………… Thnak You …………………..

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