Determinants of Retail Investors Behaviour in Investment Decisions An Empirical Analysis

Abstract

The Indian economy has shown tremendous growth post-2010; it has been possible due to many reforms taken place in different areas. The primary focus of the Indian government has remained to include all the segments of society in different financial schemes and to provide utmost benefits of these schemes to all sections of society. The government unlocked different avenues for retail invsetors to diversify their surplus funds and optimize return on their investment. The government, as well as private organizations, are deeply involved in conducting awareness programs to educate people about financial products. The principal objective is to enhance their knowledge to prepare them for rational decision making by optimizing their investment portfolios. The main objective of this study was to design a model relating retail investor behaviour and investment decisions. The study is related with retail investors, with the sample from three major states of India. The present study integrates all three dimensions viz., behavioural factors, socio-economic factors, and financial literacy to have an understanding of their impact on investment decisions. The study has highlighted to investigate the financial product preference of the respondents and to analyse the factors influencing investors behavior. Furthermore, the relations between financial literacy, risk-bearing capacity, and investment decisions are also examined. Data were collected through a structured questionnaire from the retail investors of North India. Taking assistance from managers of brokerage firm a sample of 600 respondents were taken for analysis. The analysis was done using structural equation modelling (SEM-AMOS). The behavioural factors considered in the study include: personal factors, herding factors, overconfidence, ability bias, loss aversion, regret bias, endowment bias, and mental accounting respectively. Socio-economic factors included in study are; i) market; ii) firm and iii) social. Investment decision is the dependent factor and it is comprised of: i) prior information, ii) risk, and iii) returns. The study examines the mediation effect of financial literacy on investment decisions. The results of the study revealed that behavioural factors and socio-economic factors have a significant direct and indirect impact on investment decisions through the meditation of financial literacy. v Financial literacy and risk have also a positive impact on investment decisions. This study may be useful for all those prospective investors who want to maximize the value of their investment by paying due attention to highlighted vital and significant factors. It is going to be useful for banks and financial institutions as it will provide knowledge of the impact of financial literacy, behavioral, and socio-economic factors to lure investors towards different financial alternatives. newline