Role of Financial literacy in investment decision making

Abstract

Financial literacy plays an important role in helping individuals understand financial products, manage their money effectively, and make suitable investment decisions. With the increasing availability of investment options such as shares, mutual funds, fixed deposits, insurance, bonds, and digital investment platforms, individuals need adequate financial knowledge to compare different alternatives and select investments according to their financial goals and risk tolerance. This study focuses on examining the role of financial literacy in investment decision making among individual investors in Bengaluru. The study considers important financial literacy-related factors such as investment planning, portfolio diversification, risk-taking behaviour, return expectation, and tax benefits and examines their influence on investment decision making. The study adopted a descriptive research design and collected primary data from 109 respondents in selected areas of Bengaluru through a structured questionnaire. Convenience sampling under non-probability sampling was used for selecting the respondents. The collected data were analysed using percentage analysis, descriptive statistics, and regression analysis through SPSS. The findings indicate that financial literacy has an important role in shaping investment decisions. The regression analysis shows a strong relationship between the selected factors and investment decision making, with an R value of 0.783 and R² value of 0.613, indicating that 61.3% of the variation in investment decision making is explained by the selected factors. The overall regression model is statistically significant. Among the factors studied, investment planning, risk-taking behaviour, and tax benefits have a significant positive influence on investment decision making, while portfolio diversification and return expectation do not show a significant individual influence in the model. The study concludes that improving financial literacy can help individuals understand investment risks, plan their finances, evaluate investment alternatives, and make more informed decisions. Increased financial awareness and investment education can therefore contribute to better financial planning, responsible investment behaviour, and long-term wealth creation.