Understanding Investment Behaviour: A Study on the Role of Personality in Financial Investment Decisions in India

Understanding the financial personality aids in comprehending the rationale behind an individual’s decision making related to investment, how that individual is going to react to the uncertainties involved in investing and as to how that individual can offset the irrational components of investment decisions while still gratifying the individual inclinations. The options for investments are enormous and they have different options of risk-return trade-off. Investment can take the form of debt securities, mutual funds, stocks, life insurances, derivatives, commodities and real estate. Each investor wishes to select the best available options so as to maximize his returns. The average Indian investor, in the recent years, has endured a sluggish economy, faced abrupt market declines driven by declining revenues, shocking reports of scandals and changes in the global economy. The performance of stock markets is not only the outcome of intelligible characteristics, but can also be attributed to the influence of personality and psychological characteristics which are still perplexing the analysts. Investors who understand and control their emotions and incorporate them into an investment strategy tend to feel more confident about their investment choices and are more inclined to stick to their investment plans and achieve their financial goals.

Against this background, the present study tries to ascertain the influence of personality on investment decisions among the sample of 113 Respondents from major cities of India. Each respondent’s Risk Taking score as well as his total Investment score was correlated against each other to determine their relationship. We found a strong relationship between Risk and Investment and through regression we found that risk taking personality predicts the investment behaviour. The study concludes that Risk taking personality has strong affinity in the Investment decision.