EXAMINING THE DETERMINANTS INFLUENCING PORTFOLIO DIVERSIFICATION DECISIONS OF RETAIL INVESTORS: EVIDENCE FROM ZERODHA INVESTORS

Abstract

Portfolio diversification is an important investment strategy through which investors distribute their funds across different assets and securities to manage risk and achieve more stable returns. Although several studies have examined the determinants of investment decisions among retail investors, limited research has specifically focused on the factors influencing portfolio diversification decisions among investors using the Zerodha investment platform. Therefore, the present study aims to examine the influence of risk tolerance, investment horizon, and investment goals on the portfolio diversification decisions of retail investors using Zerodha. The study also seeks to assess the relationship between these factors and the level of portfolio diversification among retail investors. The study was conducted among 247 retail investors who use Zerodha for investment purposes. Pearson correlation, ANOVA, and Chi-square tests were employed to analyse the data and examine the relationships between the selected variables and portfolio diversification decisions. The findings of the Chi-square test indicate a statistically significant relationship between investors' risk tolerance level and their level of portfolio diversification. The correlation analysis revealed a coefficient of 0.207, indicating a weak positive relationship between investment horizon and portfolio diversification. The findings further indicate that investment goals influence the portfolio diversification decisions of retail investors. The scope of the study is limited to retail investors using the Zerodha investment platform and focuses specifically on risk tolerance, investment horizon, and investment goals as determinants of portfolio diversification. The study concludes that portfolio diversification decisions are not determined solely by these factors and may also be influenced by investors' preferences, financial conditions, investment knowledge, and prevailing market fluctuations. Further research incorporating additional behavioural, financial, and market-related variables and larger samples may provide a more comprehensive understanding of portfolio diversification decisions among retail investors.