Impact of Financial Literacy on Stock and Mutual Fund Investment Decisions

Abstract

It is the energy of the financial market and the consequent increase of expectation of good investment skills especially in stock and mutual funds investment by individual investors. Financial literacy and its effect on stock and mutual fund investment decision is evaluated in terms of risk perception of investors, investor confidence and demographic differences in the present research paper. The research design is the quantitative study or descriptive and analytical research which is dedicated to measuring the level of financial literacy of stock and mutual funds investors, the behavior and preferences in investment and finding the correlation between the level of financial literacy and the decision to invest. The use of structured questionnaire was used to collect primary information, which was to study 384 conventional individual investors, and secondary data was collected through published literature and reports. These independent variable was considered financial literacy and the dependent variables were considered the mutual fund and stock investment. The data were analysed with the help of descriptive statistics, correlation analysis, regression analysis and ANOVA (5 level of significance). The findings of the study show that moderate-high financial literacy with regard to the respondents with basic financial literacy is greater than the advanced financial literacy. It has been observed that the financial literacy and stock investment decisions has a strong relationship (0.642, p < 0.05) and the regression analysis has revealed that the effects of financial literacy on stock investment decisions of mutual funds is strong (0.581, p < 0.05). Risk perception among investors also depends greatly on financial literacy and it was observed that the gap in risk perception between investors of varying education levels was also considerably high. The results also indicate that financial literacy is applicable in quality and informed decision as far investments are concerned.