Financial Literacy, Behavioural Biases and Investment Decision-Making: An Empirical Study of Individual Investor’s Financial Behaviour

Abstract

Financial literacy has emerged as a significant determinant of effective investment decision-making in an increasingly complex financial environment. The ability of individuals to understand financial products, evaluate risk-return relationships, manage resources, and select appropriate investment alternatives directly influences their financial outcomes. However, investment decisions are not governed solely by financial knowledge; behavioural factors such as overconfidence, loss aversion, herd behaviour, and emotional bias also play a crucial role in shaping investor choices. The present study examines the relationship between financial literacy, behavioural biases, and investment decision-making behaviour among individual investors. The study analyses key dimensions of financial literacy, including financial knowledge, investment awareness, risk management ability, financial planning skills, and portfolio diversification practices. It also investigates the influence of behavioural biases that may lead investors towards irrational or emotionally driven decisions. The study is based on responses collected from individual investors and applies descriptive and inferential statistical techniques to evaluate the relationship between financial literacy and investment behaviour. The findings indicate that financially literate investors demonstrate better investment planning, improved risk assessment, and more rational decision-making practices, while behavioural biases continue to influence investment preferences. The study highlights the importance of integrating financial education with behavioural awareness programmes to strengthen investor confidence, improve decision quality, and promote long-term financial well-being.