Impact of Financial Literacy on Investment Behaviour of Individual Investors in India (International Journal of Pharmaceutical Research and Applications)

Summary

• The paper reviews how financial literacy relates to investment behaviour of individual investors in India, using secondary sources.p.1
• The traditional Indian household portfolio has included bank deposits, gold, insurance-linked products, property and small-savings instruments, with mutual funds and direct equity now more visible.p.2
• The hypotheses on financial knowledge, risk perception and financial attitude have not been statistically tested in this secondary-data paper.p.3
• The reviewed literature supports the view that financial literacy is associated with improved financial planning and financial behaviour.p.5
• The paper does not provide original primary survey results and does not establish causality between financial literacy and investment behaviour.p.4
• Access to products alone cannot ensure appropriate selection, so investors need to understand risk and return, inflation, diversification, costs and liquidity.p.6

Key insights

1. Financial literacy can improve the quality of the decision process but is not the only determinant of investment outcomes.p.5
2. Age alone is not a sufficient measure of risk tolerance.p.5
3. Deposit insurance is subject to the applicable DICGC limit, so investors should not assume every amount held with a bank is fully insured.p.4
4. Financial literacy is measured differently across studies, which may limit direct comparison.p.4
5. Financial education is likely to be more useful when it is practical, continuous and connected to real financial goals.p.6
6. Schools, colleges and universities should include practical modules on budgeting, savings, inflation, credit, investment risk and retirement planning.p.6