A Project Report

On

Risk Perception and Portfolio Management of Equity investors

Submitted By

Sneha Vohra & James Cherian

Roll No –40431 & 40411

Semester - IV

In partial fulfillment of

MBA Executive

Symbiosis Institute of Business Management

Pune

(2019)
 DECLARATION

We hereby declare that the project entitled “Risk Perception and Portfolio Management of
Equity investors” is an outcome of our own efforts under the guidance of Dr. Shubhra Anand.
The project is submitted to the Symbiosis International (Deemed University) Pune, for the partial
fulfillment of the Master of Business Administration (Executive) examination 2018-2019. I also
declare that this project report has not been previously submitted to any other university.

Date: 23/02/2019

Place: Pune

Signature & Name of the Student

 CERTIFICATE OF COMPLETION

This is to certify that the report submitted is the outcome of the project work entitled “Risk
Perception and Portfolio Management of Equity investors” carried out by Sneha Vohra & James
Cherian bearing Roll No. 40431 & 40411 respectively was executed under my guidance and
supervision.

To the best of my knowledge the report

1. Embodies the work of the candidate himself/herself.

2. Has duly completed
3. Fulfils the requirement of the ordinance relating to the MBA Executive degree of the
SI(DU) and
4. Is up to the desired standard for the purpose of which it is submitted.
The project work as mentioned above is hereby being recommended and forwarded for further
evaluation.

Signature (Dr. Shubhra Anand)

Name & Address of the Institute:

SIBM Pune, Symbiosis Knowledge Village,

Gram: Lavale, Tal: Mulshi

District: Pune
 ACKNOWLEDGEMENT

We express our deepest sense of gratitude to Dr. Shubhra Anand, our guide for her valuable
guidance and encouragement provided to complete the project.

We thank Director- SIBM Pune Dr. R Raman, for extending all his support.

Our sincere thanks to Ms. Poorva Zende, academic coordinator, for keeping us updated about the
project milestones and deadlines.

Student’s Name: Sneha Vohra

Roll No. – 40431

James Cherian

Roll no. - 40411

Program - MBA Executive (2017-20)

 TABLE OF CONTENTS

ABSTRACT .................................................................................................................................... 6

INTRODUCTION .......................................................................................................................... 7

LITERATURE REVIEW ............................................................................................................... 8

OBJECTIVE ................................................................................................................................. 11

RESEARCH METHODOLOGY.................................................................................................. 11

FINDINGS .................................................................................................................................... 11

CONCLUSION ............................................................................................................................. 20

REFERENCES ............................................................................................................................. 21

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 ABSTRACT
Portfolio management is the construction and maintenance of the investments. A portfolio is a
collection of various securities through which the total risk of a portfolio is minimized while
maximizing the return from it. Portfolio management primarily involves reducing the risk as
opposed to common belief that it is used only for maximizing the returns. While returns are very
important, the ultimate objective of portfolio management is to choose a level of return by
exposing one to the least amount of risk. Risk plays an important role in the decision making of
choosing the investment to build a portfolio.

The study of significant factor of risk perception plays an important role in an investor’s decision
to create and manage a portfolio. This paper will majorly be an attempt to study the risk
perception of equity investors and how it impacts the behavior of an investor in terms portfolio
management. This study will be an attempt to test the impact of risk perception on portfolio
management in the city of Pune. Other factors such as income level and age also play an
important role in an investor’s decision to manage a portfolio. It will be an attempt to explore
individual investor’s preference for the portfolio and also investigate the impacts of risk
tolerance and perception on the investment decision. This paper will also be an attempt to find
out the level of understanding amongst equity investors about risk and importance of portfolio
management to reduce the risk.

The major objective of this study is to find out the risk perception of investors in the city of Pune
and to bring out the importance of Portfolio management of equity investors. The scope of the
study is to understand the investor’s behavior when it comes to Portfolio management.

This study will be conducted on the basis of primary data that will be collected through a
questionnaire and also through secondary data.

Keywords: Portfolio Management, Risk Perception, Equity Investors, Risk Management.

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 INTRODUCTION
Investment is a price that an investor sacrifices today in order to gain future reward. In general,
an investor always tries to maximize the return and minimize the risk involved. There are many
factors that affect an investment decision such as the demographic, knowledge level, awareness,
experience etc. It is found that Demographic factors such as gender, income level, age,
education, family size have a significant impact on investment decision making process,
especially in Indian context.

Making an investment requires careful decision making as it relates to allocation of money in

different portfolios in order to maximize the return. The influence of risk perception on the
investment criteria of an investor has become a subject in the behavioral finance literature. The
risk perception of an investor is often found to influence the investment decision. The investment
decision means a decision where the investor makes up his or her mind as to where, when, how
and how much funds will be invested on various financial products and instruments available
with an objective of getting an income at a future date. The investment decisions could be
influenced by unavoidable psychological and emotional factors. Better understanding of these
factors will help the investors to take a suitable investment decision and also help them not to
repeat their mistakes in future in extracting the best financial investment avenues.

The concept ‘risk perception’ means the way in which investors view the risk of financial assets,
based on their concerns and experience. Risk perception is the belief, whether rational or
irrational, held by an individual, group, or society about the chance of occurrence of a risk or
about the extent, magnitude, and timing of its effects.is a critical success factor that promotes
effective decision-making in risky situations.

Everyone today makes investments and investors today have so many options to choose from.
Hence, it becomes imperative to understand the investment process and decision making steps.
Each investor has an objective in mind before making any decision with regards to investing.
When these objectives are not clearly articulated investors land up with a decision which gives a
suboptimal return. It is always wise to set a clear objective in mind before making any decision
and accomplish the goal.

An investor may have a short term or a long term horizon; the short-term effectiveness examined
through the event analysis of the abnormal return for the recommended stock around the
financial announcement or due to market fluctuations whereas long-term investment horizon
examined through the investment value from a passive portfolio management strategy.

The different avenues of investment areas are as follows:

i. Low-risk avenues: savings accounts, bank fixed deposits, CPF, government securities and so
on.
ii. Moderate-risk avenues: mutual funds, unit trusts, ETF, life insurance, debentures, bonds.
iii. High-risk avenues: equity share market, commodity market, FOREX market.
iv. Traditional avenues: real estate (property), gold/silver.
v. Emerging avenues: virtual real estate, hedge funds/private equity investments, art and passion.

7
Investors choose an appropriate avenue depending on their specific need, risk preference and
expected returns.

The growing area of finance is known as behavioral finance which focuses on individual
attributes that shape the common investment practices. Study of risk perception and its impact on
investment behavior is one of the core investigation issues of behavioral finance research.

While talking about the risk factor in any investment, it is important to understand that the
decision making behavior of an individual is often affected by their attitude towards the risk. The
investors’ decision of investment is different as different levels of perception towards the risk.
Investors usually take risks according to their perception and understanding of the risk.

The present financial system offers so many investment avenues for the investors to choose
from. Some offer very attractive returns but come with a high risk and some come with low
returns and low risk. An investment can be called a perfect investment only if satisfies all criteria
and needs of an investor, which is often never the case. Therefore, the starting point of searching
of any perfect investment must look at through the investor needs. If all those needs are meets by
the investment, then that investment termed the perfect investment.

LITERATURE REVIEW
1. Panda Dr. B. N. & Panda Prof. J. K. 2013. An Analytical Study on Perception of Risk and
Return for Individual Investment. Journal of Business Management, Commerce & Research Vol-
I,No.-3,March-2013 (ISSN 2319-250X)
2. V. G. Murugan (2012), “Investors Attitude Towards Investment Option In Nellore Region,
International Journal Of Research In Commerce & Management, March 2012, Volume No. 3,
Issue No.3, ISSN.No.0976-2183
3. P. Neelakantan, Sakthivel Murugan and Ramachandra Aryasri “Impact of Risk analysis in
selection of investment avenues-A study on Debt Market Investors” Southern Economist,
October 15, 2011, Vol. 50, pp. 27-30
4. Dr.M.Ramesh and N.Geetha, A Study on People„s Preferences in Investment Behaviour,
IJEMR –November 2011-Vol 1 Issue 6 -Online -ISSN 2249 –2585 -Print -ISSN 2249 –867297.
5. Lukasz Prorokowski - 2011 – “Trading strategies of individual investors in times of financial
crisis: An example from the Central European emerging stock market of Poland” - Qualitative
Research in Financial Markets Vol: 3 Issue: 1
6. GauravKabra , Prashant Kumar Mishra and Manoj Kumar Dash, Factors Influencing
Investment Decision of Generations in India: An Econometric Study‖ Asian journel of
management and research,2010,ISSN 2229 –3795, pp.308 –325
7. Cohen, J. B, Zinbarg, E .D, Investment Analysis and Portfolio Management, illinois: Irwin,
2012.
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8. Gupta L.C., Rates of Returns on Equities: The Indian Experience, New Delhi: Oxford
University, 2012.
9. Ranganatham, M. and Madhumathi, R ., Investment Analysis and Portfolio Management, New
Delhi: Pearson Education, 2005.
10. Acharya, Debashis and Sidana, Gajendra., "Classifying Mutual Funds in India: Some Results
from Clustering", Indian Journal of Economics and Business, 6 (1), 2007, pp. 717961.
11. Adhikari, Umesh and Bhosale, Meenal., "Risk-Return Analysis of Mutual Fund Growth
Schemes", Indian Management, August 1994.
12. C. R. Kothari (2009) "Research Methodology: Methods & Techniques" (Second Revised
Edition), New Age International Publishers, New Delhi.
13. Mohan, Elangovan, Research Methodology in Commerce, 1st Edition, 2007, Deep & Deep,
New Delhi.
14. Panneerselvam R, Research Methodology, 6th Edition, 2008, PHI, New Delhi
15. Dr. Gupta. S.P statistical methods. NewDelhi, Sultan CHAND AND Co.Ltd.1989,25th
edition.
PritiMane [1] discussed the customer perception with regard to the mutual funds that the
schemes they preferred, the plans they are opting, the reasons behind such selections. This
research dealt with different investment options, which people prefer along with and apart from
mutual funds, like postal saving schemes, recurring deposits, bonds, and shares. Conclude that
mutual fund linked with share market and investors are not taking advice from authority advisor
to lead them for their investment in mutual fund so it creates the difficulty to select the mutual
fund plan favorable for them.

Awais et al. [2] explored that the factors which influence the decision-making process of
investors. According to their research, the decisions of the investors depend upon the degree of
the risk factors. Finally, they found that the increased level of knowledge about financial
information and the increased ability of analyzing that information, investor could improve the
capacity jump into risky investments for earning high returns by managing investment
efficiently.
Shukla [3] attempted this research paper, about investor’s preference towards investment
avenues and the study focused on the salaried person only. The author concluded that majority of
the respondents invested their money based on education background and they invested in
purchasing home and long-term investment. Respondents have the criteria of investment as
safety and low risk.

9
Amudhan et al. [4] analyzed the performance investment behaviour concerned with choices
about purchases of small amounts of securities, deposits, mutual fund, insurance, Chit Funds.
Researcher confirmed that there looks to a positive degree of correlation between the factors that
behavioral finance theory and previous empirical evidence identified the average investor. The
result described investment offer to a person’s money to gain future income in the form of
interest, dividends, rent, premium, pension profit or approval of the value of their standard
capital.
Vaidehi et al. [5] argued that because of different investment strategies as motives and styles by
different needs. It studies the need for better accepting of behavioral pattern the paper investors,
the behaviour pattern would aid the investment advisors to envision how the investors respond to
market schedule, and would allow them to developed suitable allotment approaches for their
customers. Among the selected factors the investment motives, attained the long-term gain,
which established to an essential factor chased by dividend and growth prospects and balancing
of short-term and long-term gain. Educational qualification, occupation, age, income and amount
of equity investments choose the investing styles of the investors notably.
Mishra [6] explained that this study aimed to investigate perception of investor towards mutual
funds with travel the important aspects of mutual funds affecting perception of investors and it
examined difference of perception of large and small investors based on explored factors.
Difference of view about mutual fund analyzed with the help of ‘t’ test. Small investors focused
on tax returns and savings but large investors expect future return. Thus mutual fund companies
must give due significance to these size for their survival and growth in Indian context.
Rastogi [7] analyzed behavioral feature in the investment choice making method.
Behavioral finance provides solution to many problems until now not answered suitably by the
usual finance theory. The study concluded that behavioral biases not affected by the combined
categories of gender and occupation.
kumar [8] carried out a research to find what plays a vital role in the minds of the investors
before decided on investment. The nine factors namely security, risk tolerance, lucrative return,
investment duration, periodic return, share preference, long term investment, futuristic return and
investment dynamics influenced the investor’s perception the author conclude that investors
compared their returns and calculate the inverse proportionality between time and the return.
Among these factors, the futuristic goals of equity investors are very considered as a factor
important for estimating their level of satisfaction.
Orerler and Taşpınar (2006) stated that in general there is lower risk tolerance for the unknown
since the impacts are new, unobservable or delayed. Higher risk tolerance emerges when people
feel more in control. Risk tolerance can be determined through consultation with affected parties
or by assessing investors’ response or reaction to varying levels of risk exposure. Risk tolerance
may change over time as new information and outcomes become available or as societal
expectations evolve (Evans, 2004). Investors should explore the connections, or lack thereof,
between their risk tolerance profiles and their expectations of investment returns. Finally, those
attributes should be made explicit and used as key inputs in structuring their portfolios.
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 OBJECTIVE
1. To study risk perception of investors.

2. To understand the portfolio selection of the investors.

3. To understand the motivation factors behind investment.

4. Identify factors that affect people’s investment decisions and hence their portfolio

RESEARCH METHODOLOGY
 Data source: Primary and Secondary Data
 Research Approach: Survey Method
 Research Instrument: Questionnaire
 Contact Method: Direct-Personal
 Sample Size: 200
 Sampling Technique: Simple Random Sampling

SCOPE OF THE STUDY

 It relates to investment in equities
 Understanding of customer / or investors about the equities
 It also help us to know the portfolio management of equity investors

FINDINGS
Type of Investment Preferred and Time taken for Evaluation of Performance of
Investment by the Respondents

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From the above table, it shows that 45.5% of the respondent’s preferred Equity type of
investments, 29% of the respondents preferred Bank Deposits and 25.5% of the respondents
preferred bonds type of investment. No one prefers T Bills. , it is clear that 35.5% of the
respondents judge the performance of investment in a month, 25% of the respondents judge the
performance of investment, 21% of the respondents judge the performance of investment
Quarterly and 18.5% of the respondents take over 5 years to judge the performance of the
investment.

Performance about their Financial Future and age from which the Respondents are
investing

From the above table, it shows that 34% of the respondents are positive about their financial
future, 29% of the respondents are unsure, 22.5% of the respondents are very optimistic about
their financial future and 14.5% of the respondents are Pessimistic. It is found that 29.5% of the
respondents have invested in age between 50 to 59 years, 26% of the respondents have invested
in the age between 60 to 69 years, 23% of the respondents have invested in the age between 70 to
79 years, and 17.5% of the respondents have invested in the age 80 and above. It is revealing that
people under 40 years only 4% have been investing.

Understanding comfort level in stock Investing and Investor Perception

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From the above table, shows that 29.5% of the respondents have no experience in stock market,
22.5% of the respondents have reasonable experience, 20% of the respondents have no
experience but some level of comfort, 16.5% of the respondents have some experience and
interest and 11.5% of the respondents are have extensive background and good comfort. It is
found that 41% of the respondents perceive high total return as the best statement, 27% of the
respondents perceive some current income and are very safe, 24.5% of the respondents are
perceive substantial return.

Attitude about Financial Risk

From the above table, it is clear that 41% of the respondents are associated with playing in the
stock market, 25.5% of the respondents have diversified investment portfolio, 18% of the
respondents afford to loss, and 15.5% of the respondents has an attitude that The Higher the
investment yield or rate of return the greater the risk.

Portfolio Activities by the Respondents

From the above table, shows that 50.5% of the respondents do not have any portfolio activities
and 49.5% of the respondents are having portfolio activities.

Risk Tolerance since the Time of Investment and Response to Market Decline

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From the above table, it shows that for 36% of the respondents risk factor has no influence since
the time of first investment, 34.5% of the respondents have less willingness to take on risk, 9.5%
of the respondents have no idea about risk . It is inferred that 40.5% of the respondents would
wait for market turnaround, 28% of the respondents would immediately liquidate and move to a
more stable investment, 22.5% of the respondents will move at 75000 for stable investment and
9% of the respondents will move at 90000 for stable investment.

Time Horizon for Withdrawals and Growth Expected Of Investment in 5 Years

From the above table, it is found that 35% of the respondents will make withdrawals between 6
to 15 years, 32.5% of the respondents currently need to make withdrawals, 18% of the
respondents will withdraw in less than 3 years and 14.5% of the respondents will withdraw after
15 years. It is clear that 28.5% of the respondents expect their investment to grow from 30% to
50%, 26% of the respondents expect their investment to grow from 0 to 15%, 23% of the
respondents expect a growth above 50% and 22.5% of the respondents expect a growth from15%
to 30%.

Sharing Information about Risk with Consultant, Learns from Risk and Measure to
Control Risk

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From the above table, it is found that 63.5% of the respondents feel free to share information on
risk with consultant and 36.5% the respondents do not feel free to share information with the
consultant. It is found that 64.5% of the respondents do not learn from their risk, and 35.5% of
the respondents learn from their risk. The table shows that 55.5% of respondents control the risk
by modification and 44.5% of the respondents avoid risk.

Chi – Square Analysis for Income Level and Age of Investing

Null Hypothesis (H0): No Significant relationship between Income and Age of investing.
Alternate Hypothesis (H1): There is a Close Significant relationship Income and Age of
investing.

It is noted from the above table that the calculated Chi-square value is less than the table value.
So, there is Close relationship between Age group and Age of investing.

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Chi – Square Analysis for Income Level and Performance of Investment

Null Hypothesis (H0): No Significant relationship between Income level and Performance of
investments.
Alternate Hypothesis (H1): There is Close Significant relationship between Income level and
Performance of investments

16
Chi – Square Analysis for Income Level And financial Future

Null Hypothesis (H0): No Significant relationship between Income level and Financial Future.

Alternate Hypothesis (H1): There is Close Significant relationship between Income level and
Financial Future

17
Chi – Square Analysis for Income Level And attitude About Financial Risk

Null Hypothesis (H0): No Significant relationship between Income level and Financial Risk.

Alternate Hypothesis (H1): There is Close Significant relationship Between Income level and
Financial Risk.

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It is noted from the above table that the calculated Chi-square value is less than the table value.
So, there is Close relationship between Income level and Financial Risk.

Chi – Square Analysis for Income Level and Risk Tolerance

Null Hypothesis (H0): No Significant relationship between Income level and Risk Tolerance.

Alternate Hypothesis (H1): There is Close Significant relationship Between Income level and
Risk Tolerance.
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  55% of the respondents are not experienced in the stock market.
 48.5% of the respondents belong to the age between 30 years to 60 years old.
 45.5% of the respondents are purchased Equities type of investments.
 34% of the respondents are optimistic of their financial future.
 41% of the respondents describe high total return as best statement.
 41% of the respondents are associated with playing in the stock market.
 28.5% of the respondents are expecting their growth 30% to 50%.
 55.5% of respondents control the risk by modification.
 From the Chi-Square Analysis, It is clear that there is a close relationship between Age
group and Age of investing and Performance of investments.
 From the Chi-Square Analysis, It is confirmed that there is Close relationship between
Income level and Financial Future and risk

CONCLUSION
The study is made to find out “Risk perception and portfolio management of equity investors”.
The study reveals that the investors in Pune city are not aware of portfolio which would
minimize risk and maximize the return. And also it is clear that the investors in Pune city have
low level of understanding about risk and the importance of portfolio management as they are
not aware these factors. Proper should to be taken in order to improve the awareness level in the
minds of the investors. Through the survey conducted, it was seen that

The current study had some limitations. This study was primarily limited to its small sample size.
A larger sample with a greater number of participants would have benefited our results and
enhanced the generalizability of the study. Another possible improvement could have been
interviewing some investors and professionals from the BSE. This method could have added
important qualitative data and greater insight into the investors’ thoughts and opinions, so that
better understanding and interpretation of the relation between risk perception and portfolio
management would have been achieved.

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