A Study of Factors Affecting Investment Decisions: With Special Reference to Spiritual

Intelligence

Authors:

Dr.Divya Verma Gakhar*

Ms. Deepti Prakash**

Abstract

Investor behavior influences financial environment of a country. Risk and Return expectation
of investors depend upon various demographic factors. This study tries to establish
relationship between demographic attributes like age, gender, spiritual orientation of
investor and his investment decision making. Structured questionnaire was administered on
100 investors. The result reveal that age has no significant relationship with risk taking
capacity of investor. Gender and spirituality intelligence have significant relationship with
risk taking capacity of investor.

Introduction

The growth of an economy depends on savings and investment patterns of the individuals.
Investment decision making of individuals is affected by a number of internal and external
factors. The investment behavior includes risk taking capacity, return expectation and
investment objectives. Investor`s decision is affected to a great extent by their demographic
factors including age, gender, work experience, total income, their organizational setup and
spirituality intelligence. All these factors have been widely researched but spirituality
intelligence and its impact on investment behavior in Indian perspective is a less researched
dimension to investment decision making.

The dictionary definition of risk is the chance that an investment's actual return will be
different than expected. While some investors are inclined to take more risk than others, there
is always a place for low risk investments as part of a properly-balanced portfolio.
Determining what risk level is most appropriate for an investor isn't an easy question to
answer. We assume that people with high spiritual intelligence have more faith in themselves,
others and God as compared to those with low spiritual intelligence. The level of spirituality
intelligence of an individual will affect his risk taking capacity and also his return
expectation. In this study it is our endeavour to study the relationship between spiritual
intelligence and investment behavior of the individuals.

Risk tolerance differs from person to person. An investor’s decision will depend on his/her
goals, income and personal situation, among other factors.
___________________________________________________________________________
*Assistant Professor, University School of Management Studies, Guru Gobind Singh Indraprastha University, Dwarka, New
Delhi, divya.ipu@gmail.com
**Assistant Professor, University School of Management Studies, Guru Gobind Singh Indraprastha University, Dwarka,
New Delhi, deeptimprakash@gmail.com

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Return is measured by how much one's money has grown over the investment period. Returns
are not known in advance. Instead, an investor can only make an educated guess as to what
kind of return to expect. The riddle of controlling risk and return is that the investor needs to
maximize the returns and minimize the risk. By doing this, an investor ensures that he/she
will make enough on the investments, with an acceptable amount of risk.

Apart from investor’s attitude and whole lot of other reasons; one may assume that the global
crisis was created and expanded because of a spiritual vacuum. According to Mayer
(Tammam, 2009), the crisis can be connected to with a lack of respect for spiritual and moral
principles in the field of finance. Various scholars have therefore highlighted the need to
integrate spiritual principles in finance and economics to make it more holistic. Spiritual
Intelligence is “The ability to act with wisdom and compassion while maintaining inner and
outer peace (equanimity), regardless of the circumstances.” Spiritual intelligence is an innate
human intelligence that is readily made available to us if we are willing to ask for it and
practice it. Investment would definitely care about compassion; because the investor cares
about longer term returns! Compassion is expanded sense of self; when combined with
Wisdom, Compassion creates incredibly effective decisions.
The rest of the paper is organized as follows: review of literature, research methodology,
results and discussion and conclusion.

Review of Literature
Drawing from the field of economics; Finance focuses on efficiency. From a societal
perspective, a key function of finance is to ensure allocational efficiency – the efficient
allocation of scarce resources to their most productive use. Emotional and psychological
factors often override the rational expectations theory in financial decision making, affecting
trading performance (Lo et al., 2005), and only if risk aversion is pegged at unrealistically
high levels, does the efficient market hypothesis and rational expectations theory explain the
volatility of the market overall (Shiller, 2003). ‘‘Risk aversion’’ is a preference for less risk
over more. The Penguin Reference Dictionary of Psychology (Reber and Reber, 2001, p.
634) however defines ‘‘risk’’ as ‘‘An action that jeopardises something of value . . . .’’Most
people are risk averse (Kahneman and Tversky, 1979). Wealthier investors are more willing
to incur more risk than less wealthy ones. Optimal asset allocation in an investment portfolio
must consider the tradeoff between expected return and risk (Yook and Everett, 2003).
Investors’ risk preferences may affect this optimization (Hallahan et al., 2004). Risk-taking
propensity is a multidimensional construct. Investment risk tolerance has four components:
propensity, attitude, capacity, and knowledge. People with high sensation seeking tendencies
showed greater risk-taking tendencies in financial decisions (Wong and Carducci, 1991).

Lovric et al. (2008, p. 1) stated that the: [. . .] investment process is influenced by a number
of interdependent variables and driven by dual mental systems, the interplay of which
contributes to bounded rational behavior where investors use various heuristics and may
exhibit behavioural biases. There are also other factors that skew decisions, such as
misevaluations of financial assets (Ritter, 2003), lack of understanding and miscalculation of
basic financial measures, such as volatility (Goldstein and Taleb, 2007), and finally, the
effect of word of mouth and media driven feedback (Shiller, 2003).Simon (1956, 1959)
proposed that decision makers are bounded rational and they aim at satisficing behaviour and
not maximizing one. Neuroscience research has shown that “financial decision making has
important roots in emotional and motivational processes and cannot be understood fully as
the expression of cognitive limitations” (Sjobreg and Engelberg, 2006, p. 21). This is on
account of the fact that investment decision making is a lot more than just mental processes

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that guide them. The argument for this awareness is based on the premise that people are very
emotional when it comes to money matters and financial decision making under conditions of
risk and/or uncertainty, and therefore ignoring this aspect would lead to an incomplete
understanding of human behaviour (Zajonc, 1979; Lo and Repin, 2002; Lucey and Dowling,
2005).

Assessment of risk is rooted in neurological processes (Peterson, 2007a). According to Tseng

(2006, p. 10), “People’s cognitive evaluations of risks tend to differ from their emotional
reactions to those risks”. One of the fundamental assumptions of Markowitz’s (1952), mean-
variance (MV) theory is that risk is undesirable and therefore people are risk averse and that
for a given level of risk people want the maximum returns and for a given return, people want
to minimize risks. Thaler (1985) develops a concept of mental accounting in which decision
makers apportion their wealth, knowledge and other resources into discrete and non-fungible
mental accounts. In economic terms, this leads consumers to over-weight sunk costs and
current cash outlays. It also leads to a number of behavioural anomalies. Thus, decisions
involving risk are determined by expectations of how alternative outcomes will impact
endowment, rather than on probabilities of the outcomes. This explains why a number of
studies (e.g., Forlani, 2002) find that the facts of a decision are frequently ignored. And more
qualitative – group of decision stimuli is the decision maker’s paradigm which comprises a
pattern of personal features that are relatively stable across different decision types. These
include competencies, personal attributes (especially demography and personality),
endowment, experience in previous decision making, and future aspirations.

Hilary and Hui (2008) found that both individuals and organizations exhibiting a high degree
of religiosity display lower levels of risk exposure in decision making. Similarly, Fernando
and Jackson (2006) noted that in the individuals studied, outcomes of difficult decisions, and
both good and bad, were in some way attributable to a religious, spiritual or value
characteristic. Addressing the role of emotional intelligence in decision-making processes,
Sevdalis et al. (2007) noted that although empirical research has emphasized the relevance of
emotions in decision-making processes, individual differences in the perception and
experience of emotion have been largely overlooked. The authors concluded when people
make decisions, they often think about the emotions the outcomes are likely to trigger.
Further, Sevdalis et al. (2007) outlined decision-makers:1. Anticipate their emotions before a
decision materializes;. 2. Experience them when they receive the outcomes of their decision;
and3. Recall them from memory when they contemplate past decisions (good or poor).

There has been a debate on whether financial scandals are caused due to excessive profit
seeking. One of the real root causes of the corporate scandals is “the overemphasis
corporations have been forced to give in recent years to maximizing shareholder value
without regard for the effect of their actions on other stakeholders” (Kochan, 2002, p. 139).
Many corporations have profit-sharing programs that are intended to align management
interests with owners’ value maximization goals. Profit-based mechanisms create a huge
amount of pressure and opportunity for individual managers and may have some serious
flaws. Bazerman and Watkins (2004) have found that financial scandals are actually
surprises, which firms can predict well in advance. Owing to psychological, organizational
and political factors, firms fail to predict them. By proper recognizing, prioritising and
mobilizing firms can reduce their vulnerability to such scandals.

Haviland et al. (2009) opine that internalised controls through the inculcation of values make
firms and decision makers feel personally responsible for their own actions and conduct, thus

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preventing scandals to occur. A reading of business history shows that companies run by a
management with a moral conscience and an awareness of social responsibilities have usually
fared well, while those preoccupied only with material rewards for their management and
shareholders have seldom been able to sustain their business in the long term’’ (Wilson,
1997, p. 7). Thus, Organizations are increasingly realizing the futility of achieving financial
success at the cost of humanistic values. As James Aurty (1994, p. 117) has observed, “Work
can provide the opportunity for spiritual and personal, as well as financial, growth. If it does
not, we are wasting far too much of our lives on it.” Empirical research by Lyubomirsky and
her colleagues has shown that we can maximize our well being as much as 40 percent by
intentionally engaging in activities such as expressing gratitude, doing random acts of
kindness, and creating a sense of optimism (Lyubomirsky et al., 2005; Sheldon and
Lyubomirsky, 2006, 2007; Kurtz and Lyubomirsky, 2008; Lyubomirsky, 2007; Boehm and
Lyubomirsky, 2009). It is tobe believed that spiritual behavior at work leads to performance
excellence, organizational wellbeing, and steady growth that surpass competitors with
conventional practices.

Research Methodology

The objective of the study was to analyze the investment behavior with respect to their
personal attributes and spiritual orientation. The sub objectives include:

• To study the relationship between spiritual orientation and risk return expectation of
investors

• To study the impact of demographic attributes on risk, return and investment behavior
of respondents.

To carry out this study a well-structured questionnaire was administered on 100 respondents.
Another standardized questionnaire of Spiritual Intelligence at Work- Self Assessment (@ Judi
Neal 2004) was used to evaluate spiritual intelligence index of respondents.

Hypothesis

Ho1: There is no difference between investors of various age groups and their level of
awareness about investment alternatives.

Ho2: There is no difference between risk taking capacity of investors and age.

Ho3: There is no difference between risk taking capacity of investor and their gender.

Ho4: There is no significance between spirituality intelligence of investors and risk taking
behavior

Ho5: There is no difference between gender and return expectation of investors.

Results and Discussion

The questionnaire was administered on 100 respondents out of which 62 per cent were males
and 38 per cent were females. The total sample constituted 73 per cent people between the

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age group of 20-30 years. 64 per cent of which having work experience less than 5 years. 40
per cent of the respondents have annual family income more than 10 lakhs. 76 per cent of
respondents are working in private sector as shown in table- 1.

Table 1: Demographic Profile of Respondents

Percent
Male 62
Gender
Female 38
20-30 years 73
Age Groups 30-40 years 21
40 and above 6
1-5 years 64
5-10 years 22
Work Experience
10 years and
above 14
0-5 Lakhs 24
Annual Family 5-10 Lakhs 36
Income 10 Lakhs and
above 40
Public Sector 24
Organisational Setup
Private Sector 76

The results of the study show that out of the total income 40 per cent is saving by the sample
investors (40 percent is the median value of saving). Out of total sample 14 per cent
respondents save 40 per cent of their income.

The respondents are having a portfolio of investment instruments out of various categories of
investment alternatives available. As depicted in table-2, 58.39 per cent of total investment is
in low risk instruments. 24.73 per cent of investment is in medium risk instruments and 16.48
per cent of investors invest in high risk instruments.

Table 2: Percentage of Investment in Various Categories of Investment Alternatives

Percentage of
Financial Instruments
Investment
Low Risk Investment instruments 58.39%
Medium Risk investment instruments 24.73%
High Risk Investment instruments 16.48%

Table- 3 shows gender-wise distribution of proportion of money invested under different

financial instruments. The result reveals that the investors are not investing in one or two
instruments, but they invest in a portfolio. The proportion of money invested in all
instruments is not more than 25 per cent so that they can use multiple instruments to be used
to generate better returns. The investor of today or the so called Generation Y is intelligent
and able to take rational decision of not putting all their eggs in one basket. They want
maximize their returns and also want to minimise the risk. 24 per cent males and 11 per cent
of females put less than 25 per cent of their saving in saving bank account.25 per cent of

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males also put their money in fixed deposit but the total proportion is less than 25 per cent
investment. 29 per cent of males and 16 per cent females invest their money in provident
fund but their investment is not more than 25 per cent of their total portfolio. 13 per cent of
males invest less than 25 per cent in gold. 13 per cent males invest upto 50 per cent in real
estate and 5 per cent invests upto 75 percent to 100 per cent in real estate. 9 per cent of male
investors would invest in share and derivatives instruments and their proportion of investment
is less than 25 per cent.

Table 3: Gender-wise Distribution of Total Investments in Various Financial

Instruments

Proportion of money saved under each instrument

Financial
Less than 25
Instruments 25-50 % 50-75 % 75-100 %
%
Male Female Male Female Male Female Male Female
Savings
bank 24 11 15 13 9 6 2 2
account
Fixed
15 8 5 4 3 1 0
deposit 25
Government
securities
2 2 6 0 2 0 0
(KVP, NSC
etc) 21
Provident
16 12 6 2 2 0 0
Fund 29
Insurance
26 11 10 4 2 4 1 1
Plans
Gold 13 8 11 2 3 4 0 0
Mutual
11 5 7 4 1 0 0 0
funds
ETFS 7 4 1 0 1 0 0 0
Real Estate 8 5 13 2 6 2 5 0
Bonds/
10 6 2 1 0 1 0 0
Debentures
Equity
9 4 6 1 1 0 0 0
Shares
Derivative
9 1 2 2 0 0 0 0
instruments

Table 4 depicts the results of kruskal wallis test on age group and level of awareness of
respondents about different investment alternatives. Chi-square value is 7.564 which is
significant at 0.023 per cent. It is clear that there is significant difference between level of
awareness about investment alternatives and people from different age groups. The
investment awareness of respondents having age group of 40 years and above is higher than
level of awareness of age group between 20-30 years. Ho1 is rejected that there is significant
difference between age of respondents and their level of awareness about different investment
alternatives.

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 Table 4: Kruskal Wallis Test on Age and Investment Awareness

Chi-Square 7.564
df 2
Asymp. Sig. 0.023
a. Kruskal Wallis Test
b. Grouping Variable:
age

Table 5 shows level of awareness about investment alternatives amongst males and females.
In this table 45.16 per cent males having high level of awareness about investment
alternatives. 40.32 per cent of males having medium level of awareness about various
investment alternatives. 63.15 per cent of females having medium level of awareness about
various investment alternatives.

Table 5: Gender –wise Analysis of Level of Investment Awareness

Level of Investment Awareness

Gender Low Medium High
Male 14.51% 40.32% 45.16%
Female 26.31% 63.15% 10.52%
Table-6 reveals the investment objectives of Indian investors. 67 per cent investors want a
balance between growth and safety of their investment with some protection from impact of
inflation. 17 per cent investors invest only for security of their investment.

Table 6: Investment Objectives

Investment Objectives Percentage

Security- Safety of my capital is first priority 17%
Inflation Protection- While I do want my portfolio to grow, I’m uncomfortable with
4%
fluctuating returns
Growth & Security- I want to balance between growth and safety with some protection
67%
from the impact of inflation.
Growth- I’m primarily interested in growth and less concerned about fluctuating
4%
returns
Maximum Growth – My sole objective is maximum growth over long term 7%

Table- 7 shows investor`s response on their risk taking capacity. 50 percent investors are
medium risk takers. 45 percent investor want to take low risk and only 5 percent are
aggressive investors.

Table 7: Risk Taking Capacity of Respondents

Risk Taking Capacity Percent

Aggressive Investor 5
Balanced Investor 50
Conservative Investor 45

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Table- 8 shows return expectation of investors. Contrary is the risk taking capacity, 34
percent investors expect high returns from their investment. 47 per cent expect medium return
and 19 per cent are happy with low returns.

Table 8: Return Expectation of Investor

Return
Expectation Percentage
High Returns 34%
Medium Returns 47%
Low Returns 19%

The correlation between risk and return is shown in table-9, which shows that risk and return
has low degree of correlation but the relationship is highly significant.

Table 9: Correlation Between Risk and Return

return
risk Pearson Correlation 0.438
Sig. (2-tailed) 0
N 100
**. Correlation is significant at the 0.01 level (2-tailed).

Table- 10 reveals that there is significant difference between gender and risk taking capacity
of investors. The results are significant at 0.05 per cent level. The null hypothesis Ho3 is
rejected.

Table 10: Mann-Whitney U Test Between Gender and Risk Taking Capacity

risk
Mann-Whitney U 777.5
Wilcoxon W 1.52E+03
Z -3.113
Asymp. Sig. (2-tailed) 0.002
a. Grouping Variable: gender

The spirituality intelligence index scores were calculated for all investors and most of the
investors having high spirituality intelligence. Results as shown in table-11 reveal that there
is significant difference between spirituality intelligence of investors and their risk taking
capacity. The null hypothesis in Ho4 is rejected.

Table 11: Mann- Whitney U Test Between Spirituality Intelligence and Risk Taking
Capacity

risk
Mann-Whitney U 925
Wilcoxon W 2.88E+03
Z -1.821

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 Asymp. Sig. (2-tailed) 0.039
a. Grouping Variable: Spirituality Index

The Mann-Whitney U test results as given in the table 12 shows that there is no significant
difference between gender and return expectation. The results are not significant at 0.05 level.
The null hypothesis Ho5 is accepted.

Table 12: Mann-Whitney U Test Between Return Expectation and

Gender

return
Mann-Whitney U 1.13E+03
Wilcoxon W 3.02E+03
Z -0.221
Asymp. Sig. (2-tailed) 0.825
a. Grouping Variable: gender

Conclusion

The above discussion concludes that investment decision making is affected by numerous
factors. The results reveal that Indian investors majority want to get low risk and higher
returns. Their preferred investment alternatives are saving bank accounts, Fixed Deposits,
Insurance Plans, Gold, Mutual Funds and Real Estate. Females are having medium level of
awareness about investment alternatives as compared to majority of male category. Age has
no significant difference with risk taking capacity of investors. Gender and level of
spirituality intelligence has significant difference with risk taking behavior of investor.
Organisations which provide various financial products and instruments, should take care of
these demographic factors before convincing their clients about investment alternatives.

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