When it comes to money and investing funds, the individual portfolio investor isn't always as logical as he feels he is, which is why there's a whole school of thought dedicated to explaining why people behave in irrational and weird ways. The primary objective of this research is to investigate the effects of five major behavioural biases on individual investor decisions in a metro city India, with a focus on mutual funds, as well as to examine how individuals make decisions to ensure that their investments generate greater returns for a better future. The statistical evidence shows that a variety of behavioural elements have a significant part in people' investment decision-making patterns, which has an impact on the population's economic situation. The purpose of this study is to illustrate how an individual's perspective, attitude, and conduct affect mutual fund investments.
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We are not always as sensible as we believe when it comes to money and investing, thus there is a whole school of study that explains our often-unusual financial behaviour. This assumption is at the heart of the idea, but academics who have questioned it have found evidence that rational action isn't always as common as we might think. Investors do not always operate in accordance with economic theory; however, in times of risk and uncertainty, people may utilize mental shortcuts to attain their goals. The assumption that individuals behave rationally and that the investing process considers all of the information that is available is the basis for a significant portion of economic theory.
Individuals strive to research the market before investing, but no one knows how successful they are. When managing their portfolios, investors often make a variety of mental blunders that have an effect on the returns they perceive on their assets. Behavioral finance is the academic field that investigates the absence of objective decision-making that occurs in relation to investment (Carhart, M. 1997). Some managers of mutual funds have started looking for ways to make money off of quirks in the market due to the fact that irrational investing choices may lead to securities being priced incorrectly.
Because investors are continually seeking for methods to outperform the market, one question that arises is whether behavioral finance-oriented funds may be of assistance. The theory of finance tells us that investors make choices logically and rationally, considering all of the information at their disposal. In actuality, nothing of the kind takes place. When making judgments, investors often pick and choose which bits of information to pay attention to, and frequently base their choices on emotion rather than logic. The study of behavioral finance has uncovered several mistakes by investors influenced by cognitive biases. As a result, decision making is a complex process that necessitates the use of financial models to estimate the projected risk and return associated with a certain investment (Fama, E. 1970).