Determinants of Retail Investors’ Risk Perception and Portfolio Diversification Decisions in Equity Markets: An Analytical Study

Abstract

Retail investors play a crucial role in the development and stability of equity markets, still their investment decisions are often influenced by subjective risk perceptions rather than purely rational evaluation. This study analytically examines the determinants of retail investor’s risk perception and their portfolio diversification decisions in equity markets. Retail investors are individual investors investing their personal funds in equity market who seeks opportunities for capital growth, dividends and other financial benefits and gain. Key elements that influence the investment decisions include past as well as predicted performance of instruments, and financial metrics like net profits and revenue. High level of income relates with larger investment proportions, the individual risk perception based on age, gender, income, investment portfolio and other demographic factors. The study underscores the importance of investor education, transparent market communication, and regulatory initiatives aimed at enhancing financial awareness. The factors identified to find the result of the study are Demographic factors, Psychological and Behavioral factors, Market and Economic factors and Portfolio specific factors.