Indian investors think safe but invest in risky avenues. According to MyFi’s study report ‘Decoding India’s Investment Mindset’ conducted to understand people’s risk tolerance perception and investment behaviour, younger investors favour high-risk assets for the high-growth of their investments, whereas older investors’ priority is wealth preservation. The study took responses from more than 7000 MyFi platform users across age groups, from young adults to senior citizens aged 65 and more, across income groups, and over 13 cities across India.
As of October 31, 2024, there were a total of 21.65 crore (216.5 million) mutual fund accounts, and retail investors hold around 80 per cent of the total with 17.24 crore (172.4 million) accounts, as per the Association of Mutual Funds in India (AMFI) data. The report's findings align with AMFI's data and indicate that more retail investors are now investing in mutual funds, with an active mutual fund investor base surpassing 50 million.
Notably, the study highlights the mismatch in investors’ self-risk perception and their investment choices later.
Here are the key findings from the report.
Risk Tolerance Perception Versus Investment In Risky Assets:
The report indicates a mismatch in the initial perception of risk tolerance and investors’ final choice of investment assets. According to the report, Many users initially classify themselves as having low to medium risk tolerance during onboarding, yet their investment portfolios often lean toward higher-risk assets.”
Investors In Tier I And Tier II Cities:
The study highlights that investors in Tier I cities like Bengaluru and Delhi have medium prefer medium-risk avenues, whereas, in Tier II cities like Jaipur and Nagpur, investors show a high-risk investment tendency. It indicates a possible connection between changing socioeconomic dynamics in these cities, an individual’s aspiration to create wealth fast, and an evolving entrepreneurial ecosystem.
The other reason behind this behavioural distinction in investment approach is the difference in the financial education, emphasises the report.
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Ambition, Optimism, And Influence:
These three factors affect an investor at every stage to change or dominate one’s initial perception, states the report. The behavioural patterns of investors are verily influenced by investors’ ambitions, optimism, and peer attitudes.
The report underlines that higher financial literacy and more intuitive and customised tools can mitigate this undue influence and ‘align investment strategies with an investor’s true risk profiles and long-term goals’.
Income Group And Investment Behaviour:
Investors with more than Rs 12 lakh annual income: These are categorized as high-income earners in the report. This segment of investors has a high inclination for high-risk investments. They want to use their disposable income to earn higher returns.
Investors with Rs 5 to Rs 12 Lakh annual income: Referred to as Middle-income users, this investors’ segment has a balanced approach when comes to investment, says the report.
Investors with 0 to Rs 5 Lakh annual income: Investors in this avert risky investment and prefer low-risk options to keep their financial status protected from any downward risks.
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Kiran Nambiar, CEO, MyFi, states the gap and opines, “The key insight about the gap between perceived and actual risk tolerance highlights the importance of bridging behavioural and knowledge gaps by leveraging AI and data-driven insights to personalise the experience.”
The report highlights that investors’ behaviour is complex and several factors affect their investment choices. Thus there is a need for non-manipulative, and more personalised advice and tools to suit investors’ individual needs and goals.
