EFFECT OF BEHAVIORAL BIASES ON MUTUAL FUND INVESTMENT BEHAVIOR WITH RESPECT TO INVESTORS OF CHENNAI

Abstract

The decisions towards investment are often presumed to as rational, but, the behavior of actual investors tends to change due to the behavioral biases. Some of such biases like mental accounting, over-confidence, anchoring, herding behavior and loss aversion affect the choices of mutual fund investment. The present research study examines the impact of the behavioral biases over the investors of mutual fund and also investigates the way in which psychological factors affect investment duration, risk perception and fund selection. The study has been done with respect to the mutual fund investors of Chennai, Tamil Nadu. Convenience sampling has been adopted for selecting the respondents and the sample size is 100. Questionnaires have been administered over the respondents for collecting data from them and analysis has been done through regression. Results show that the investors mostly depend on heuristics and emotions rather on analytical reasoning. This leads towards suboptimal portfolio performance. It has been suggested through the study that behavioral awareness and financial literacy are needed for improving the decision-making of the investors of mutual funds.