“A STUDY ON COMPARATIVE ANALYSIS OF RISK AND

REWARD RELATIONSHIP BETWEEN INVESTMENT IN

SHARE MARKET AND FIXED DEPOSIT”

Submitted by
Asst. Prof. Vishal Arun Gupta

B. Com, B. Ed., M. Com. (Accountancy), M.A. in Economics, UGC-NET,

MAH-SET

RAV’s Laxmichand Golwala College of Commerce & Economics

M.G. Road Ghatkopar East, Mumbai-400 077

Contact: 8850779341

[email protected]

“A STUDY ON COMPARATIVE ANALYSIS OF RISK AND

REWARD RELATIONSHIP BETWEEN INVESTMENT IN
SHARE MARKET AND FIXED DEPOSIT”

Abstract:
Saving is that part of income that is set aside to fulfill future financial needs by sacrificing current
consumption expenditure. There is a direct relationship between saving and investment. So if there is
more saving then investment will also be high and vice versa. In today's context investment is a major
concern for each section of society even from the upper class to the lower class. But everybody has
different risk-bearing capacities, psychology, and attitude toward the investment. Some are high risk
takers however others want a regular income without risk in short less risk. In this study, I have
considered the comparative analysis between investment in the share market and investment in Fixed
Deposits (FD). I have taken primary and secondary data for the study and observed that investment
behaviour depends upon various factors like age, class of family, society, region, etc. Sometimes it is
also observed that caste as well and religion also influence investment. Normally investment in shares
is considered high-risk bearing however investment in Fixed deposit is safer than the stock market.
But as per the analysis, we can see a clear change in the trend of investment in the recent few
decades, as per the recent data we can observe that the investment in the share market going to
increase very fast.

Keyword:
Stock market, Share market, Fixed Deposit (FD), Risk and Reward, Interest, Investment, Stable
earning.

Introduction:
A fixed deposit is a type of deposit where a particular sum of money is deposited for a particular
period of time. It is assumed to be the safest type of investment because the rate of interest is fixed in
advance at the time of agreement. Here depositors get the principal amount along with interest after a
particular period of time. On a fixed deposit rate of interest is higher as compared to saving deposit.
Fixed deposits are mostly preferred by the person who wants a particular return without risk like a
retired person, low-risk-taking investors, etc.

The stock market is also known as the share market. In the stock market, investors invest in various
ways it may be through IPO, FPO, delivery purchase, etc. SEBI is the governing body for the stock
exchange. It controls the overall activity of the stock exchange as well as brokers. There are various
stock exchanges in India, but NSE and BSE are the two leading stock exchanges. BSE was
established in 1875 and it is the oldest stock exchange in ASIA. However, NSE was established in
1992. As of 2024, India is the 4th largest stock market in the world. In the Indian stock market, Sensex
and Nifty are dominant market indexes.
Literature Review:
1. Abdullah, Nur Adiana Hiau & Shari, Aminah. (2020).
As per this study, the risk in fixed deposits is lower than the market risk. The performance of
growth and value funds and equities vs fixed-income funds differs significantly from one
another. The findings of the study may be used by fund managers and investors to make
better decisions that will enhance portfolio performance.

2. Lean, Hooi Hooi & Ang, Wei Rong & Smyth, Russell. (2015).
The researcher compares and evaluates the performance of Socially Responsible Investment
(SRI) funds in North America and Europe. Between January 2001 and December 2011, the
researcher used a large sample of 248 SRI funds in North America and 500 SRI funds in
Europe. During this period, SRI funds in North America outperform than SRI funds in
Europe, according to the researcher, who also finds that SRI funds in North America do
better than those in Europe. Using a non-parametric ranked portfolio approach, the researcher
finds higher evidence of performance persistence in European SRI funds than in their North
American equivalents but finds little evidence of performance persistence in either location.

3. Lehmann, Bruce N & Modest, David M, 1987.

This paper's primary objective is to determine how sensitive traditional mutual fund
performance indicators are to the benchmark used to determine normal performance. In
examining this subject, the authors used a range of APT benchmarks as well as traditional
CAPM benchmarks. They discovered that there was minimal correlation between the implied
absolute and relative ranks. Therefore, the choice of the risk and return model as well as the
technique for building the APT benchmark are crucial in this situation. Using all benchmarks,
the authors finally discovered statistically significant measurable anomalous performance. It
seems unclear how to evaluate this phenomenon economically.
4. Angelidis, Timotheos & Giamouridis, Daniel & Tessaromatis, Nikolaos, 2013.

Instead of comparing the excess performance of mutual fund managers to the return of a
passive portfolio with identical risk characteristics, it is better to evaluate them against their
self-reported benchmark. Disregarding the self-reported benchmark causes the timing and
stock selection metrics for excess performance to be measured differently. The researcher
reviews the baseline empirical evidence for evaluating fund performance using timing and
stock selection metrics that take the self-reported benchmark into account. This study
presents a novel factor exposure-based method for evaluating mutual fund managers' static
and dynamic timing skills.
Comparatively Analysis between Investment in Shares and Fixed Deposit:
 Risk is high in the stock market as compared to fixed deposits.
 Return in the stock market is volatile and higher however return in fixed deposit is
predictable and lower.
 The stock market is more liquid as compared to fixed deposits.
 Capital appreciation is high in the stock market as compared to fixed deposits.
 Chances of diversification in the stock market are very high as compared to fixed
deposits.
 Stock market requires research and understanding regarding various stocks however
fixed deposits do not require such expertise.
 Stock market requires high emotional discipline as compared to fixed deposits.
Hypothesis:
Hypothesis 1: (Tested in Question 14)
 H1 : Risk and reward affect investment decisions.
 H0 : Risk and reward do not affect investment decisions.

Hypothesis 2: (Tested in Question 7)

 H1 : Investment Decisions are influenced by age.
 H0 : Investment Decisions are not influenced by age.
Hypothesis 3: (Tested in Question 8)
 H1 : Investment Decisions are influenced by Income.
 H0 : Investment Decisions are not influenced by Income.
Hypothesis 4: (Tested in Question 11)
 H1 : Investment Decisions are influenced by Government policies.
 H0 : Investment Decisions are not influenced by Government policies.

Limitation of the Study:

It is very difficult to obtain data on the share market from primary sources because of the lack
of proper knowledge of the share market among the respondents. Apart from knowledge, respondents
are very casual during filling out the questionnaire. They do not pay attention to the same. This study
is also subject to limitation of time and access to sources for research.
Objective of this study:
 To find out the risk-reward relationship between the Share market and Fixed deposit.
  To find out the factors influencing investment decisions.
 To find out the opinion of the investors.
 To find out the awareness of the investors towards their investment decision.
 To find out the attitude of investors towards investment management.
 To find out the attitude of investors from different demography.

Methodology:
Basically there may be primary or secondary data for the research work. Primary data are those data
which are collected through direct sources by the researcher. It is also called first-hand data. However
secondary data are those data which is collected by someone else previously. It is readily available
through the Internet, newspapers, magazines, etc. It requires less time, money, and energy. However,
on the other hand, primary data require more time, money and energy.

For this study I have used both sources for data collection i.e. primary and secondary data collection.

Scope of the study:

This study includes a comparative analysis between investment in the stock market and investment in fixed
deposits. It includes the risk and reward relationship between both the above. This study covers the attitudes
of different ages, gender, etc. towards risk and reward. This study also includes the various factors
influencing investment decisions.

Data Collection and Interpretation:

Number of Respondents = 200

Data Interpretation:
Q.1. Occupation:
(Table 1.1)
Occupation Number of Responses Percentage (%)
Business 12 6.00%
Asst. Professor/Associate Professor/ 25 12.50%
Professor
Student 125 62.50%
Service 31 15.50%
Any Other 7 3.50%
Total 200 100%
 (Figure 1.1)

Interpretation:
This study includes Businessman, Teachers, Students, Service providers and others. It
includes 6% Businessman, 12.50% Teachers, 62.50% Students, 15.50% Service providers
and 3.50% Others. The study includes majority of students of degree colleges.

2. Age in years:

(Table 1.2)
Age in years Number of Responses Percentage (%)
Less than 20 63 31.50%
20 to 30 105 52.50%
30 to 45 24 12.00%
More than 45 8 4.00%
Total 200 100%
 (Fig
ure 1.2)

Interpretation:
This study includes various age groups. It covered 31.50% less than 20 years, 52.50% are
between 20 to 30 years, 12% are between 30 to 45 years and 04% are more than 45 years.
This study includes majority of the young people belonging to the age group between 20 to
30 years.

3. Are you aware about stock market?

(Table 1.3)
Are you aware about stock
Number of Responses Percentage (%)
market?
Yes 159 79.50%
No 41 20.50%
Total 200 100%
 (Figure 1.3)

Interpretation:
This includes awareness about the stock market. As per the study, 79.50% of people are
aware of the stock market and 20.50% are not aware of the stock market. This indicates that
the majority of the people are aware of the stock exchange.

4. Are you aware about Fixed Deposit?

(Table 1.4)
Are you aware about Fixed
Number of Responses Percentage (%)
Deposit?
Yes 165 82.50%
No 35 17.50%
Total 200 100%
 (Figure 1.4)

Interpretation:
This includes awareness about the Fixed Deposit. As per the study, 82.50% of people are
aware of the fixed deposit and 17.50% are not aware of the fixed deposit. This study shows
that the majority of people are aware of the fixed deposit system.

5. In your opinion which one is riskier for investment?

(Table 1.5)
In your opinion which one is riskier for
Number of Responses Percentage (%)
investment?
Stock Market 174 87%
Fixed Deposit 26 13%
Total 200 100%
 (Figure 1.5)

Interpretation:
As per this study, 87% of people say that the stock market is riskier than the fixed deposit
however only 13% disagree with the statement. Based on this study we can conclude that
people think that the stock market is riskier than fixed deposits.

6. Where would you like to invest your money?

(Table 1.6)
Where would you like to invest your
Number of Responses Percentage (%)
money?
Stock market 60 30.00%
Fixed Deposit 49 24.50%
Both in a particular proportion 91 45.50%
Total 200 100%

(Figure 1.6)

Interpretation:
As per this study, 30% of people are interested in investing their money in the stock market,
and 24.50% are interested in investing in fixed deposits, however, a maximum part of
respondents would like to keep a balance between fixed deposits and the stock market i.e.,
45.50%. It means people want to keep a balance between risk and reward.

7. Do you think investment decision is influenced by the age?

(Table 1.7)
Do you think investment decision is Number of Responses Percentage (%)
influenced by the age?
 Yes 125 62.50%
No 75 37.50%
Total 200 100%

(Figure 1.7)

Interpretation:
As per this survey, a large part of the people say that investment decision is influenced by the
age factor. The decision to invest differs with age group. Here 62.50% of people say that
investment decision is influenced by age and 37.50% of people do not agree with this. From
this study, it is clear that most of the people agree that investment decision is influenced by
the age of the people.
Hypothesis 2:
 H1 : Investment Decisions are influenced by age.
 H0 : Investment Decisions are not influenced by age.
The null hypothesis (H0) states that the population proportion (p) is less than or equal to 0.5.
The alternative hypothesis (H1) states that the population proportion is greater than 0.5.

z = (p̂ - p) / (s / √n)

Assuming the sample size (n) is 200, and estimating the population standard deviation (σ)
with the sample standard deviation (s):

s = √(p̂ (1-p̂ ))
= √(0.625(1-0.625))

= √(0.625 × 0.375)

= √0.2344

= 0.484

z = (0.625 - 0.5) / (0.484 / √200)

= 0.125 / 0.0342

= 3.65

The z-score is 3.65.

Using a z-table or calculator, we find the p-value associated with a z-score of 3.65:

p-value ≈ 0.0001

Since the p-value is less than the significance level (α = 0.05), we reject the null hypothesis
(H0).

Interpretation:
The z-test result suggests that investment decisions are indeed influenced by age. The sample
proportion of investors influenced by age (0.625) is significantly different from the
hypothesized population proportion of 0.5. This indicates that age plays a significant role in
investment decisions, supporting the alternative hypothesis (H1).

8. Do you think that level of income also affects the investment decision?
(Table 1.8)
Do you think that level of income also
Number of Responses Percentage (%)
affects the investment decision?
Yes 169 84.50%
No 31 15.50%
Total 200 100%
 (Figure 1.8)
Interpretation:
Here 84.50% of people say that the investment decision is also influenced by income
however 15.50% of people do not agree with the same. It indicates that income is an
important factor that affects investment decisions.
Hypothesis 3:
 H1: Investment Decisions are influenced by Income.
 H0: Investment Decisions are not influenced by Income.
The null hypothesis (H0) states that the population proportion (p) is less than or equal to 0.5.
The alternative hypothesis (H1) states that the population proportion is greater than 0.5.
z = (p̂ - p) / (s / √n)
Assuming the sample size (n) is 200, and estimating the population standard deviation (σ)
with the sample standard deviation (s):
s = √(p̂ (1-p̂ ))
= √(0.845(1-0.845))
= √(0.845 × 0.155)
= √0.1312
= 0.362
z = (0.845 - 0.5) / (0.362 / √200)
= 0.345 / 0.0256
= 13.45
The z-score is 13.45.
Using a z-table or calculator, we find the p-value associated with a z-score of 13.45:
p-value ≈ 0.0000 (essentially 0)
Since the p-value is less than the significance level (α = 0.05), we reject the null hypothesis
(H0).
Interpretation:
The z-test result strongly suggests that investment decisions are indeed influenced by income.
The sample proportion of investors influenced by income (0.845) is significantly different
from the hypothesized population proportion of 0.5. This indicates that income plays a
significant role in investment decisions, supporting the alternative hypothesis (H1). The
extremely low p-value suggests that the observed difference is highly unlikely to occur by
chance.
9. Do you think gender is also one of the factors that influence the investment decision?
(Table 1.9)
Do you think gender is also one of the factors
Number of Responses Percentage (%)
that influence the investment decision?
Yes 80 40%
No 120 60%
Total 200 100%

(Figure 1.9)
Interpretation:
As per this study here 40% of people say that gender also affects decision-making regarding
investment however 60% do not agree with this statement. As per this study, most of the
people say that gender factors do not influence decision-making.
10. Do you think that the background of the family and society also affect investment
decisions?
(Table 1.10)
Do you think that the background of the family
Number of Responses Percentage (%)
and society also affect investment decisions?
Yes 128 64%
No 72 36%
Total 200 100%

(Figure 1.10)
Interpretation:
Here 64% of people agree that the background of the family and society also affect the
decision of investment however 36% do not agree with this statement. It indicates that the
background and society of the people to which it belongs affect the investment decision.

11. Do you think that government policy affects the investment decision?
(Table 1.11)
Do you think that government policy
Number of Responses Percentage (%)
affects the investment decision?
Yes 153 76.50%
No 47 23.50%
Total 200 100%
 (Figure 1.11)
Interpretation:
Here 76.50% of people say that investment decision is affected by government policy
however 23.50% of people do not agree with this statement. It indicates that government
policies affect investment decisions. If the government brings favourable policy, then it will
increase investment, on the other hand, if the policy is unfavourable then it will decrease the
investment.
Hypothesis 4:
Null Hypothesis (H0): p ≤ 0.5 (Investment decisions are not influenced by government policies)
Alternative Hypothesis (H1): p > 0.5 (Investment decisions are influenced by government policies)
Sample data:
- Number of respondents who think government policy affects investment decisions: 153 (Yes)
- Number of respondents who think government policy does not affect investment decisions: 47 (No)
- Total number of respondents: 153 + 47 = 200
Proportion (p̂ ) of respondents who think government policy affects investment decisions:
p̂ = 153/200 = 0.765
Standard Error (SE):
SE = √(p̂ (1-p̂ )/n) = √(0.765(1-0.765)/200) ≈ 0.028
Z-score:
Z = (p̂ - p0) / SE = (0.765 - 0.5) / 0.028 ≈ 9.46
Interpretation:
Since the Z-score (9.46) is greater than the critical Z-score (typically 1.645 for a one-tailed test at a
5% significance level), we reject the null hypothesis (H0).
Conclusion:
There is extremely strong evidence to support the alternative hypothesis (H1) that investment
decisions are influenced by government policies, with a proportion of respondents significantly higher
than 0.5.
In fact, the Z-score is so high that it's clear that government policy has a substantial impact on
investment decisions, with over 76% of respondents agreeing.

12. Which of the following factors influences more to the investment decision?
(Table 1.12)
Which of the following factors influences
Number of Responses Percentage (%)
more to the investment decision?
Age 28 14%
Gender 8 4%
Income Level 149 74.50%
Society 15 7.50%
Total 200 100%

(Figure 1.12)
Interpretation:
As per this study income is the most significant factor which affects the investment decision
i.e., 74.50% however it is also influenced by age (14%), Society (7.50%), and Gender (4%).
It means income is the most dominant factor in investment decisions. If a person has surplus
income after fulfilling their daily needs then definitely it will increase investment and vice
versa.

13. Which factor influences you regarding fixed deposits?

 (Table 1.13)
Which factor influences you regarding
Number of Responses Percentage (%)
fixed deposits?
Stable and predictable return 52 26%
Less Risk 52 26%
Both of the above 96 48%
Total 200 100%

(Figure 1.13)

Interpretation:
As per this study 48% of people like fixed deposits because of their stable earnings and less
risk. However, 26% like this because of stable earnings, and 26% people like this because of
less risk only.
14. Which factors influence you regarding the share market?
(Table 1.14)
Which factors influence you regarding
Number of Responses Percentage (%)
the share market?
Return Factor 40 20.00%
Risk factor 42 21.00%
Both of the above 118 46.00%
Total 200 100%
 20%

Return Factor
Risk factor
59% Both of the above
21%

(Figure 1.14)
Interpretation:
As per this study, 46% of people like to invest in the share market because of the high risk
and return. However, 20% like to invest due to high returns, and 21% like to invest due to
their risk-taking ability.
Hypothesis 1:
 H0: Risk and reward do not affect investment decisions.
 H1: Risk and reward affect investment decisions.

The null hypothesis (H0) states that the population proportion (p) is less than or equal to 0.5.
The alternative hypothesis (H1) states that the population proportion is greater than 0.5.
z = (p̂ - p) / (s / √n)
Assuming the sample size (n) is 200, and estimating the population standard deviation (σ)
with the sample standard deviation (s):
s = √(p̂ (1-p̂ ))
= √(0.59(1-0.59))
= √(0.59 × 0.41)
= √0.2419
= 0.492
z = (0.59 - 0.5) / (0.492 / √200)
= 0.09 / 0.0347
= 2.60
The z-score is 2.60.
Using a z-table or calculator, we find the p-value associated with a z-score of 2.60:
p-value ≈ 0.0047
Since the p-value is less than the significance level (α = 0.05), we reject the null hypothesis
(H0).
Interpretation:
The z-test result suggests that risk and return do affect investment decisions. The sample
proportion of investors influenced by both risk and return (0.59) is significantly different
from the hypothesized population proportion of 0.5. This indicates that investors are indeed
influenced by both risk and return when making investment decisions. The data provides
strong evidence to support this claim.
Findings:
 Most of the people are aware about the stock market. (Question 3)
 Most of the people are aware about the fixed deposit. (Question 4)
 Investment in the stock market is riskier than fixed deposits. (Question 5)
 Most of the people like to invest in Both the stock market and fixed deposits in a
particular proportion. (Question 6)
 The investment decision is influenced by age. (Question 7)
 Level of Income also affects investment decisions. (Question 8)
 The background of the family influences investment decisions. (Question 10)
 Government policy affects investment decisions. (Question 11)
 Investors keep both things in mind i.e., risk and rewards. (Question 14)

Conclusion:
As per the study, it is very clear that the trend is going to change from safe earning to risk-
taking earning. At the same time, people like to get a proper balance between risky and stable
earning investments. As per this study, people want to keep a balance between risk and
reward. It shows that the attitude of the investors is changing rapidly they are going to get
more return at the cost of higher risk. As per this study, the income factor is the most
dominant factor which affects investment decisions. However, age and gender also play role
in investment decisions up to a certain extent. People are more conscious about investment
decisions because it is a very important part of life and necessary for the future.

ANNEXURE:

1. Your Name:
 2. Your Occupation:
 Business
 Asst. Professor/Associate Professor/Professor
 Student
 Service
 Any other
3. Age in years:
 Less than 20
 20 to 30
 30 to 45
 More than 45
Are you aware of the stock market?
 Yes
 No
4. Are you aware of Fixed Deposit?
 Yes
 No
6. In your opinion which one is riskier for investment?
 Stock Market
 Fixed Deposit
7. Where would you like to invest your money?
 Share market
 Fixed Deposit
 Both in a particular proportion
8. Do you think investment decision is influenced by age?
 Yes
 No
9. Do you think that level of income also affects the investment decision?
 Yes
 No
10. Do you think gender is also one of the factors that influence the investment decision?
 Yes
 No
11. Do you think that the background of the family and society also affect investment
decisions?
 Yes
 No
12. Do you think that government policy affects the investment decision?
 Yes
 No

13. Which of the following factors influences more to the investment decision?
 Age
 Gender
 Income Level
 Society
14. Which factor influences you regarding fixed deposits?
 Stable and predictable return
 Less Risk
 Both of the above
15. Which factors influence you regarding the share market?
 Return factor
 Risk factor
 Both of the above

References: (Books):
 William R. Emmons, 2023. "Mary Childs: The bond king—how one man made a
market, built an empire, and lost it all," Business Economics, Palgrave Macmillan;
National Association for Business Economics,
 Ivashina, V., Lerner, J. (2019). Patient Capital, Princeton University Press.
 Vishwanath, K. (2015). The Billionaires Apprentice: The Rise of the Indian American
Elite and the Fall of the Galleon Hedge Fund. South Asian Journal of Human
Resources Management.

Reference: (Journals):
1. Abdullah, Nur Adiana Hiau & Shari, Aminah. (2020). A Comparative Analysis of
Fixed Income Unit Trust Funds versus Equity Unit Trust Funds in Malaysia. Asian
 Academy of Management Journal of Accounting and Finance. 15. 95-117.
10.21315/aamjaf2019.15.2.5.:
2. Lean, Hooi Hooi & Ang, Wei Rong & Smyth, Russell. (2015). Performance and Performance
Persistence of Socially Responsible Investment Funds in Europe and North America. The
North American Journal of Economics and Finance. 34. 254-266.
10.1016/j.najef.2015.09.011.
3. Lehmann, Bruce N & Modest, David M, 1987. "Mutual Fund Performance Evaluation: A
Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American
Finance Association, vol. 42(2), pages 233-265, June.
4. Angelidis, Timotheos & Giamouridis, Daniel & Tessaromatis, Nikolaos, 2013. "Revisiting
mutual fund performance evaluation," Journal of Banking & Finance, Elsevier, vol. 37(5),
pages 1759-1776.

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