Variables influencing preferences for stocks (high risk investment) vis-à-vis fixed deposits (low-risk investment): A comparative study

Abstract

Purpose

The paper, an exploratory attempt, aims to analyze the perception of individual investors of stock market of Punjab towards investing in stocks vis-à-vis fixed deposits. For the purpose, the most and least influencing variables affecting the decisions of individual stock investors to invest in stocks and fixed deposits were gauged and the comparison for such variables influencing their preferences was conducted.

Design/methodology/approach

A pre-tested, well-structured questionnaire which was administered personally and the responses of 241 respondents were analyzed. The responses have been analyzed with the help of weighted average scores method used to identify the most and least influencing variables and paired sample t-test is applied to the data to identify if there exists any significant difference in the variables influencing the investment preferences for stocks (high-risk investment) vis-à-vis fixed deposits (low- and medium-risk investment).

Findings

High returns was found as the most important variable while investing in stocks and stability of income as the most important variable while investing in fixed deposits. Religious reason is the only variable found as the least influencing variable for individual investors in Punjab while investing in both avenues, i.e. stocks and fixed deposits. Statistically significant difference exists in perception of individual investors for 22 variables towards the preference for stocks vis-à-vis fixed deposits.

Practical implications

The current research will be helpful for financial service providers in understanding the investment preferences of the individual stock investors on the basis of variables influencing such preferences and suggest them investment options as per their perceptions and needs.

Originality/value

This paper is a first of its kind to empirically compare the variables influencing the preferences for high-risk investments vis-à-vis low-risk investments of individual investors of Punjab, India and contributes to the understanding of the investor behaviour.

Citation

Arora, S. and Marwaha, K. (2014), "Variables influencing preferences for stocks (high risk investment) vis-à-vis fixed deposits (low-risk investment): A comparative study", International Journal of Law and Management, Vol. 56 No. 4, pp. 333-343. https://doi.org/10.1108/IJLMA-07-2013-0032