Empirical evidnence on perception of risk about investments


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Empirical evidnence on perception of risk about investments

  1. 1. International Journal of Management IJMVolume 1 • Issue 1 • May 2010 • pp. 32-42http://iaeme.com/ijm.html ©IAEM EMPIRICAL EVIDNENCE ON PERCEPTION OF RISK ABOUT INVESTMENTS A Study with Special Reference to Life insurance Policy holders of Vellore District Dr. N. KANNAN. Assistant Professor in Department of Business Administration St.Mary’s School of Management Studies, Rajiv Gandhi Road, Chennai 600 119AbstractThe human brain is a computer, built to process information about the environmentand to judge which of a large number of possible courses of action is the most likelyto be successful. Man is the greatest risk taker of them all. Human beings even havethe extraordinary capacity for enjoying danger. People like to take ride on rollercoasters, to drive fast cars, to engage in highly competitive sports, and of course, theyalso like such intellectually risky practices as gambling. There is no person on earthwho cannot take a risk and who does not enjoy it at least to some degree. Life presentsus with risks every day: take too many and you are in trouble, take none and you willstagnate.Risk is inherent in the life of each and every individual irrespective of his age, gender,economic and social status. The degree of risk one can take mainly depends upon thepersonal characteristics and what one has to fall back upon. A person should thinkwell and analyze all the aspects before making any decision which involves more risk.OBJECTIVES OF THE STUDYIn order to find out the solutions for the questions raised above the present study wascarried out with the following objective, 1. To analyze the socio–economic profile of the sample respondents. 2. To measure the level of risk perception regarding Life insurance from sample respondents.
  2. 2. International Journal of Management 3. To find the factors those are associated with the level of risk perception in life insurance. 4. To provide valuable suggestions to enhance the risk bearing ability of the respondents. HYPOTHESES In the light of the objectives of the study, the following hypotheses have been framed. 1. Sex does not influence the level of risk perception. 2. Age does not influence the level of risk perception. 3. Marital status does not influence the level of risk perception. 4. The nature of family is not associated with the level of risk perception. 5. Level of education does not influence the level of risk perception. 6. Occupation is not associated with the level of risk perception. 7. Monthly income and risk perception is not associated with each other. 8. Monthly savings does not influence the level of risk perception. 9. There exists no association between the total family members and the level of risk perception. 10. Status in family does not influence the level of risk perception. 11. There exists no association between reading habit and the level of risk perception. 12. There exists no association between viewing of television and the level of risk perception. 13. Listening radio does not influence the level of risk perception. SAMPLING A sum of 300 respondents was contacted. Among them 247 respondents furnished complete information. The remaining 53 respondents did not turn back to respond. Random sampling method was used to identify the sample respondents. The respondents from Vellore District were selected for the study. METHODOLOGY The data used in this study was primary data. Questionnaire is used for data collection. The questions are restructured by undertaking a pilot study. The questionnaire consists of four divisions pertaining to the socio- economic profile of respondents, risk factors related to personal life, social life, and business or investment 34
  3. 3. International Journal of Management FRAMEWORK OF ANALYSIS The data collected is analyzed with the help of statistical tool such as i) Simple percentage method ii) Range and iii) Chi – Square test. SUMMARY OF FINDINGS The findings of this study are divided into two sections namely socio-economic profile of sample respondents and factors influencing risk perception. Socio-Economic Profile of Sample Respondents 1. Out of 247 respondents, maximum numbers (56%) of respondents’ reside in urban area. 2. Though 44% of the respondents are residing in rural area, majority (80%) of them work in urban area. 3. Of the total sample respondents, 71% are male and the remaining 29% are female. 4. Majority number of respondents i.e., 137(55%) are youngsters who belong to the age group that ranges up to 30. 5. Majority of the respondents (58%) are married. 6. Most of the respondents are from nuclear family and they numbered 134(54%). 7. Around 44% of the respondents are Under Graduates. 8. The occupation pattern of the respondents reveals that 164(66%) of them are employed, 47(19%) are businessmen and only 16(7%) are agriculturists. 9. Among the total respondents, 53% are with monthly income ranging up to Rs.5, 000 and only 17% are with higher income which is above Rs.10, 000. 10. Around 43% of the respondents are with family income ranging upto Rs.7,500. Majority of them belongs to low and middle income group 11. 170(69%) respondents’ monthly savings ranges upto Rs.1,000 only. 12. As majority (43%) of the respondents belongs to low income group, around 52% of the respondents’ family savings ranges upto Rs.1,500 only. 13. The total family members of majority (58%) of the respondents are four and five. 35
  4. 4. International Journal of Management 14. Majority (57%) of the respondents are playing the role as member of the family. 15. In case of the availability of communication facility to the sample respondents, 77% of the respondents have telephone, 55% of them have Mobile phone and 44% of them are using Email facility. 16. Out of the total 247 respondents, more number of respondents (63%) are regular readers of newspapers and magazines and only five percent do not have the habit of reading newspapers and magazines. 17. The percentage of respondents is high (53%) in case of those who are regular viewers of television and only three percent of the respondents do not view television at all. 18. Most of the respondents (53%) are occasional listeners of radio. 19. In case of browsing and mailing, around 26% of the respondents browse and mail regularly and 43% occasionally. Factors Influencing Risk Perception A sum of thirteen individual attributes has been selected to test whether risk perception differs on the basis of these attributes. Risk perception index and Chi- Square test have been employed to examine whether there is any significant association between each of the individual attributes and the risk perception of the respondents. 1. The average risk perception index of male respondents is more than their counterparts. There exists a significant association between sex and risk perception 2. The average risk perception index of the respondents decrease with the increase in age. There exists no association between age and the level of perceived risk 3. The unmarried respondents are having high average risk perception index. It is found that there is no association between marital status and level of risk perception. 4. The average risk perception index of the respondents who are in joint family is more than that of the respondents those who are in the nuclear family. The chi-square result reveals that there is a highly significant association between the nature of the family and the risk perception. 5. The average risk perception index of diploma and professional course holders is high compared to others. There exists no association between educational qualification and risk perception. 6. The respondents who are doing business are having high average risk perception index. There exists a significant association between occupation and level of risk perception. 36
  5. 5. International Journal of Management 7. The average risk perception index increases with increase in monthly income. It is found that there is no association between monthly income and level of perceived risk. 8. The average risk perception index increases with increase in monthly savings. It is found that there is no association between monthly savings and level of risk perception. 9. The average risk perception index increases with the increase in the total number of members in the family. There exists no association between total number of members in the family and risk perception. 10. The respondents who assumed the role as head and those who assumed the role as member in the family are having the same risk perception index. There exists no association between status in the family and risk perception. 11. The average risk perception index is high for those respondents who read newspapers and magazines regularly and the average risk perception index is low for those who do not have the reading habit. It is found that there is no association between reading habit and risk perception. 12. The average risk perception index is high for those who do not view Television at all. There exists no association between viewing Television and level of risk perception. 13. The respondents who listen Radio regularly are having high average risk perception index. There exists a significant association between listening radio and level of risk perception. Variable 2 value 1. Sex 22.754** 2. Age 0.290 3. Marital status 0.700 4. Nature of family 6.595* 5. Educational qualification 9.342 6. Occupation 14.302* 7. Monthly income 4.536 8. Monthly savings 5.781 9. Total family members 5.309 10. Status in family 1.226 11. Reading habit 5.088 12. Viewing Television 3.322 13. Listening Radio 12.828* *significant at five percent level **significant at one percent level 37
  6. 6. International Journal of Management SUGGESTIONS The following are the suggestions suggested to the educational institutions, the general public, the social clubs and the government. TO THE EDUCATIONAL INSTITUTION When a person gets a job or a promotion, 85% of the time it is because of his attitude, and only15% of the time because of intelligence and knowledge of specific facts and figures. It is surprising that almost 100% of education goes to teach facts and figures, which account for only 15% of success in life. Educational institutions should build courage in the minds of students to face any risk they come across in their life. Educational institutions should frame the system in such a way they build fundamental traits of character – such as honesty, compassion, courage, persistence and responsibility. A true education is must which trains both the head and the heart. A real education should train the students to choose their advisers carefully but to use their own judgment. The greatest motivator is belief. Educational institutions have to inculcate in students the belief that they are responsible for their actions and behaviour. As soon as they accept responsibilities, they accept and handle risk comfortably. “Parents are first teachers and teachers are second parents”. Both teachers and parents can be good mentors for the youth to equip them in managing various risk they face as a member of the family, as a member of the society, as an employee of a concern or as owner of a concern. TO THE GENERAL PUBLIC People are facing risk everywhere. Handling such risk always strengthens oneself and provides opportunity for self development. New challenges develop new potential. They cannot control all the events that happens in their lives, but they can control how they deal with them. No one can take risk. If they tell they are taking risk, it means that they are managing risk. Human beings are gifted with sixth sense i.e., common 38
  7. 7. International Journal of Management sense, the ability to see things as they are and do them as ought to be done. When things go wrong, as they sometimes will, they can react towards the risk responsibly by using their commonsense. Accepting responsibilities in family, society or at work place involves taking calculated, not foolish risks and being accountable, which is sometimes uncomfortable. Most people would rather stay in their comfort zones and live passive lives without accepting responsibilities but they can accept responsibilities and handle risk smoothly by evaluating all the pros and cons, then taking the most appropriate decision or action. People should be willing to accept risky jobs and do a little bit more than what they get paid for to become the kind of person they want to be in their profession. Most people prefer to work in other’s concern rather to start their own concern or invest in any business, because of the risk involved in the latter. A burning desire is the starting point of all accomplishment. To start and run a business successfully a person should have a positive attitude coupled with hard work and commonsense. It is not the luck that helps businessmen but their action, preparation and planning that helps to manage any risk and succeed. Humans can create their own environment, whereas animals adapt to their environment. Everyone should use the greatest gift, the ability to think, to its full potential to manage the risk they face anywhere. TO THE SOCIAL CLUBS Gone are those days, where people wait for the government to do all public work. Now, they form groups in the name of social clubs and work to solve their problems and risk they face in the society. Social clubs should concentrate on those risky activities where there is no government’s concentration and contribution. Social clubs can also attract the government’s attention to solve various crucial problems which is out of their control and authority than an individual. It helps to reduce the risk of every individual in running their day to day life. Government’s work in reducing the hazards and risks faced by the people in the country can be made effective and easy with the support of various 39
  8. 8. International Journal of Management voluntary organizations, charities and other NGO’s where the general public is also the members. Social clubs and other related organizations should give their supportive hand to the government in informing and spreading the public policies in the country. TO THE GOVERNMENT Government is the heart of any country. It is the central focal point around which all people in the country make their journey. The role of government is very crucial as it influences every ones life directly or indirectly. Today people are facing risks and they find hard to run even their daily life due to unexpected hazards like terrorist attack, bomb blast, war, disease, natural calamities like flood, storm etc. An individual or a social club can not solve such massive disaster which affects the whole country to a greater extent due to financial and other constraints. In such cases only the government can handle such critical situations and make it good as it is before to some extent. It becomes a custom that when there is a change in the ruling party, there is always atleast some change in the public policy. This creates more risk for the general public in many ways. The public policies should be standard irrespective of the change in the party who governs the country. Government should train and motivate all the ministers, cabinet members, chief officials and other government servants from top level to the bottom level that they all are there to help the public and serve them but not to use their power and authority in frightening them. Because today people find that making a complaint in a police station or filing a suit in a court and facing the resultant reactions as the most risky thing they face elsewhere. There is a general illusion among public that the government departments and other government organizations are working lethargically and even if they complaint to higher authorities, it is of no use and sometimes creates a great risk to them. Government should take steps in solving the public queries and risks in a quicker manner rather questioning them and putting them in trouble. Each and every government department should inculcate certain basic ethical values like sincerity, honesty, integrity and timeliness in doing their job to avoid bribery, corruption etc., which will reduce the risk of the public 40
  9. 9. International Journal of Management in paying huge amount illegally to get their work done in any government office. Government should encourage financially and morally those individuals and corporate who undertake risky ventures. They should provide soft loans with flexible terms and conditions of repayment. For those projects involving huge investments, the government can participate in their share capital and become a partner in sharing the risk and loss involved in it. Government announced various policies and financial supports to all kinds of business through banks and various industrial development corporations. But most of the people are not aware of it completely. Government should communicate such public policies through a powerful media to make it effective and to help the business community to manage their risk in arranging finance and other sources. Like a mother, who takes care of her children, a government should take care of the people, protect them from various risks and guide them to manage it successfully. CONCLUSION Success involves taking calculated risks. People sometimes mistake irresponsible and rash behaviour as risk-taking. They end up with negative results and blame it on bad luck. Risk taking is relative. The person who never attempts anything risky makes no mistakes. However, not making the attempt is often a bigger mistake than making the attempt and failing. Indecision is habit forming and contagious. Many opportunities are lost because of indecision. Everyone can take risk, but not gamble. Risk takers move ahead with their eyes open. Gamblers shoot in the dark. Risk must be taken, because the greatest hazard in life is to risk nothing. The person, who risks nothing, does nothing, has nothing, and is nothing. They may avoid suffering, sorrow, but they cannot learn, feel, change, grow, love or live. Chained by their attitudes they are slaves, they have forfeited their freedom. Only a person who risks is free. “To laugh is to risk appearing the fool. To weep is to risk appearing sentimental. To expose feelings is to risk exposing your true self. To love is to risk not being loved in return. To live is to risk dying. To hope is to risk despair To try is to risk failure.” 41
  10. 10. International Journal of Management Web sites: Public Insurance Companies Life Insurance Corporation of India (LIC) www.licindia.com National Insurance Company of India www.nationalinsuranceindia.com New India Assurance Company www.niacl.com Oriental India Insurance Company www.orientalinsurance.nic.in United India Assurance Company www.uiic.co.in www.licindia.com www.prulife.com www.sbilife.com www.maxnewyork.com www.tata - aig.com www.ingvysyalife.com www.allianzebyuers.com www.hdfeinsurance.com www.ampsanmar.com www.aviva.com www.metlifeindia.com www.bimaonline.com Reference: 1. Martis. Clifford, Growth of services – Buliding better customer relation, Preethi prakashan, August 1996 2. Insurance Information Strategies, MetaGroup, File :115, by Judy Johnson, Oct 2001 42