Understanding the Impact of Behavior Biases on Retail Investors Decision Making in Mutual Funds in India

Abstract

Introduction: Investment decisions should ideally be based on rational analysis and sound financial principles. However, in reality psychological biases and cognitive errors often play a significant role in shaping how investors make their investment choices.

Need for Study: This study explores the impact of behavioral biases on mutual fund decision making among retail investors in India.

Objectives of Study: The primary objective of this study was to examine the impact of behavioral biases on mutual fund investment decision-making among retail investors in India. The secondary objective is to identify and analyze specific behavioral biases such as overconfidence, herd behavior, and loss aversion, and their influence on the preferences, risk tolerance, and performance outcomes of mutual fund investors in India.

Methodology: The research is based on a combination of both primary and secondary data. The primary data analysis was done via a structured questionnaire which was distributed amongst mutual fund investors to assess their investment behavior and psychological biases. The secondary data was reviewed by various research papers, journals, books, and online financial resources to compare findings with existing literature.

Result: The study provides clear evidence that behavioral biases significantly impact mutual fund investment decisions. Herding leads to irrational market trends, loss aversion prevents timely exits, and overconfidence results in excessive risk-taking.