This paper aims to determine whether retail investors’ perception about risk of a security is consistent with the perceived return concerning that security. The study is based on primary data, which have been collected through a well-designed questionnaire. The respondents were asked to rank as many as 11 investment vehicles by risk and return on a 5-point scale. A test for paired differences has been employed to test the validity of the null hypothesis (H0) so that the risk ranking proposed by each respondent will approximate the average return ranking for each instrument/asset class. The results indicate that retail investors do not rank a high majority of the alternative investment vehicles at the same risk and return levels. The study, thus, provides some additional evidence that retail investors do not always follow theoretical assertions.

Generally, the investors invest with twin objectives of maximizing return and minimizing risk. However, the perception of investors about the risk and return for a particular investment alternative may differ from each other. The perceptions of retail equity investors concerning the risk and return associated with various investment alternatives have important implications throughout financial markets. The fund allocations by investors, both retail and institutional, in various investment vehicles depend to a great extent on the magnitude of risk and return discerned by them on specific investments. Thus, the opinions of the investors concerning their perceived risk and return on various investment vehicles have a significant impact on their investment preferences and the performances of their funds. But sometimes, there appears to be no consensus about the perception of performance concerning various securities among the researchers. Due to this, actual asset allocations often do not follow theoretical suggestions.

The purpose of the present paper is to examine how retail equity investors perceive the risk and return for various investment alternatives. More specifically, the study aims to determine whether retail investors' perception about risk of a security is consistent with the perceived return concerning that security. Besides the introduction, the study is organized in four sections. While in the second section a review of the earlier studies has been made, the third section describes the research design and methodology used herein. The fourth and fifth sections are devoted to the analysis of survey data and the main conclusions of the study, respectively.