Understanding Investor Behavior In India Through A Behaviorally Integrated Structural Model

Abstract

This research explores the role of financial literacy in Indian investment sentiment. This is done using an integrative, behaviorally oriented conceptual framework of cognitive (investment confidence), affective (behavioral biases, risk attitude), and demographic variables. Utilizing a multi-method analytical strategy—Structural Equation Modeling (SEM), Confirmatory Factor Analysis (CFA), binary logistic regression, and K-means cluster analysis—the research examines survey data of 300 Indian retail investors from various socio-economic groups. Results also indicate that financial literacy has a strong positive influence on investment confidence but influences investment participation only indirectly via psychological considerations. Three investor types—Confident Practitioners, Cautious Learners, and Skeptical Strugglers—are identified using the behavioral segmentation approach. Pragmatic suggestions are drafting focused financial education and fintech policies to account for investor heterogeneity by confidence, literacy, and risk perception. By spanning the long-standing knowledge-action gap in emerging market investment conduct, this study focuses on a novel dual-mediation model and investor typology to the existing literature in behavioral finance. The study suggests to create financial literacy programs for the different levels of investors. It recommends developing easy-to-use FinTech tools to reduce common investors mistakes.