Mutual Fund Investment Decisions of Individual Investors in Delhi NCR A Behavioural Finance Perspective

Abstract

Traditional finance considers humans to behave with pure rationality, with perfect newlineinformation in decision making. With the introduction of Efficient market hypothesis, newlineMM Model and Capital Asset pricing Mode, which brought in the new perspectives of newlineobjectivity to finance and the cornerstone of all these theories were rationality in the newlinedecision making. Rationality is when an individual selects the best alternative from an newlineexhaustive list of options. In 2002 Daniel Kennman, a famous psychologist won newlineNobel Prize mentioned that decisions taken by the individuals are not on the newlinepresumptions o rationality but they are on the basis of biases i.e. where the rationality newlineassumes humans as logical, irrationality assumes humans as social. Where the newlinestandard finance considers humans to behave with perfect rationality with perfect newlineinformation however in reality neither information is perfect nor pure rationality newlineexists. A real investor has limitations not only to receive complete information but newlinealso the decisions so taken are affected by behavioural biases and his own personality. newlineHaving said so, the investors take irrational decisions and Behavioural finance newlineattempts to understand the decision- making process of individual investors with the newlineassumption of irrationality. Biases are the tendencies to lean in favor of something newlineand this can be caused by heuristics (mental shortcuts, emotions, social pressures). newlineUnconscious efforts are the systematic errors in the decision making and it is a mental newlineshortcut that influences our thinking and decision making, leading us to process newlineinformation in a selective and subjective manner resulting in irrational or inaccurate newlinejudgements. Michael M Pompian (2006) has divided the study of Behavioral Finance newlineat macro and micro level. newlineLiterature clearly indicated that the demographics, personality and risk perception as newlinethe factors that affect the decision making of individual investors. Investor newlineDemographics such as age, marital status, gender, occupation, income, newlineresponsibilities, and psych