PIONEER INSTITUTE OF PROFESSIONAL STUDIES

INDORE

Diligence & Excellence

(Since 1996)
SESSION
(2014-2016)
A
SYNOPSIS OF
MAJOR RESEARCH PROJECT
ON
A Comparitive Study on Risk Tolerance Level of Business class and
Service Class Investors With Reference to Indore City

GUIDED BY:
Dr. Prashant Jain

SUBMITTED BY:
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

1. Introduction

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Risk tolerance, a persons 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) 5778 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
for the notion that females have a lower preference for risk than males. Grable and Joo (1999)

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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 persons 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 Bowmans (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) 5778 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 respondents 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.

RATIONALE:
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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.

LITERATURE REVIEWS:
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(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 importances 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): 121.
5. Narang, S. (2007). Investigating the factors affecting the investment decision in
residential development (Doctoral dissertation, University of Nottingham).

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
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Name

: ..................

Occupation

: Salaried

Educational Qualification

:...................

Annual Income:

: Below Rs.2,00,000

Business
Rs.2,00,000-4,00,000

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

Above Rs.6,00,000

Gender

Age (in years)

Contact No. (Optional)

: ..........................

18-30 yrs

Female
31- 40 yrs

41-50 yrs

50 & above

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.
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.
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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.
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 lifes 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
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Advisors
Certified Market Professional/Financial Planners
Thnak You ..

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