The Impact of Financial Literacy on Investment DecisionMaking among Retail Investors in India

Abstract

The remarkable democratisation of the Indian capital market, as seen in the swift growth of demat accounts and direct retail investors, has raised the bar on financial competence for ordinary investors and made it a national economic priority. This study examines the impact of financial literacy on the investment decision-making process of retail investors in India, considering the factors of risk appetite and behavioral biases. Primary data was collected from 312 retail investors in selected urban and semi-urban areas in a selected structured questionnaires in a descriptive and analytical method by purposive sampling technique to collect the data. Reliability analysis, descriptive statistics, Pearson correlation, multiple regression and one-way ANOVA, as well as independent-samples ttests were used to analyze the data. The results indicate that financial literacy has a positive and statistically significant effect on investment decision-making followed by risk tolerance, while behavioural biases have a significant negative effect. There was also a large gap in financial literacy between income groups and a large gender gap in financial literacy was noted. The study calls for strengthening financial education as a sensible policy tool to enhance decision quality of household investors and provides implications for financial education, financial advisers and regulators.