A Critical Evaluation of Interplay Between Risk Appetite, Investment Channel Preference and Financial Preparedness

This study examines the behavioural factors influencing financial preparedness among urban Indian investors, focusing on the interplay between Risk Appetite (RA), Investment Channel Preference (ICP), and Financial Goal Achievement (FGA). The study confirms construct validity and reliability using Cronbach’s alpha, Composite Reliability, and AVE. However, reverse-coded items in RT and RA suggest a need for scale refinement. Grounded in behavioural finance theory, the research employs Structural Equation Modelling (SmartPLS) to analyze key constructs: Risk Tolerance (RT), Loss Aversion (RA), ICP, FGA, and Financial Preparedness (FP). Data from 271 participants reveal that FGA significantly mediates financial preparedness (β = 0.862, p < 0.001), highlighting its critical role in converting investment efforts into financial readiness. ICP notably influences FGA (β = 0.517, p < 0.005), emphasizing that investment choices impact goal achievement. Loss Aversion, when aligned with structured ICP, also positively affects FGA (β = 0.192), while Risk Tolerance has a weaker impact (β = 0.102) and shows a strong negative correlation with RA (β = -0.916). Individuals with higher risk tolerance may be less cautious, potentially hindering goal attainment, as per the results conditional path analysis indicates that risk-averse individuals can still achieve favourable outcomes with higher levels of ICP. Model fit indices (SRMR = 0.11, NFI = 0.734) indicate moderate fit, and multicollinearity between RT and RA (VIF > 6.0) suggests conceptual overlap. The findings emphasize the value of personalized investment strategies and behaviourally adaptive financial education for enhancing financial preparedness and long-term financial resilience.