Role of Financial Literacy in Mutual Fund Investment Decisions: A Study of Rural Investors

Abstract

This paper explores how financial literacy can be used to guide mutual fund investments by rural investors. As financial inclusion and the development of capital markets have risen, it has become imperative to determine the determinants of investment behaviour, especially in the rural setting where financial awareness is not very high. The research design is quantitative research based on primary data obtained with the help of a structured questionnaire to be filled in Google Forms. Descriptive statistics, correlation and regression were used to analyse 412 responses and determine the association between financial literacy and investment decision-making.

The results indicate that a majority of the respondents are of moderate financial literacy, with financial products awareness but deficient in the insight into some of the fundamental concepts like risk and diversification. The common use of traditional investment opportunities like bank deposits and gold is still predominant as there is a risk-averse nature of the rural investors. Nevertheless, we witness a gradual transition towards the investments in the form of mutual funds, which suggests the exposure to the modern financial instruments is growing.

The statistical analysis also supports the hypothesis that there is a strong positive correlation between financial literacy and mutual fund investment decisions indicating that increased financial knowledge increase confidence and desire to invest. The paper also brings out the role of behavioural and social factors, including dependence on informal sources of information, in the determination of investment behaviour. On the whole, the study highlights the necessity of specific financial literacy programs to fill the awareness-action gap to achieve informed investment choices and enhance the financial inclusion of rural communities.