Behavioural Biases and Investment Decisions: Evidence from Equity and Mutual Fund Investors in India

Abstract

Retail participation in Indian equity and mutual fund markets has expanded rapidly since 2020, drawing in investors whose financial sophistication has not kept pace with their market access. Drawing on the current (2020–2026) evidence base, this study examines how four Behavioural biases overconfidence, herd behaviour, loss aversion and risk perception shape investment decision-making among Indian retail investors, and whether their influence differs between equity and mutual fund investors. Primary data were collected from 720 retail investors across major Indian metropolitan centres using a structured, five-point Likert-scale questionnaire and a multistage random sampling design, with construct reliability assessed using Cronbach's alpha and hypothesised relationships tested using Pearson correlation, multiple regression and Structural Equation Modelling (SEM). All four biases showed a significant, positive path to investment decision-making, with overconfidence exerting the strongest influence, followed by herd behaviour, loss aversion and risk perception; the model met conventional fit thresholds (CFI = 0.94; RMSEA = 0.064) and explained approximately 70 per cent of the variance in decision-making, with equity investors showing higher overconfidence and herding while mutual fund investors were more loss-averse and risk-conscious. The paper synthesises current, Scopus- and Web of Science-indexed behavioural finance research into a single, comparative model spanning both equity and mutual fund investors, offering guidance for advisers, asset managers and SEBI in designing bias-sensitive investor education.