Financial Literacy and Portfolio Diversification: An Empirical Study in Ahmedabad

Abstract

This research has been undertaken with the purpose of understanding the role of financial literacy in determining the investment behavior of individuals. The study also attempts to draw relationships between demographic factors and financial literacy, as well as investment patterns. Based on empirical evidence, it could be inferred that factors like gender, employment conditions, and household income had a bearing on levels of financial literacy in individuals; additionally, education, age, household income, and marital status had a bearing on decisions related to portfolio design and diversification. At the same time, no significant relationship was found between financial literacy and portfolio diversification. This could be attributed to the fact that many people rely on financial experts for investments and portfolio management. So, although the financial literacy statistic may be alarming, it could also point at a potential growth in services of investment advisers and financial planners.

TOPICS: Wealth management, behavioral finance, in portfolio management

Key Findings

• • Gender, Employment and Household Income are related to Financial literacy in individuals.

• • Past personal experiences, opinions of one’s inner circle, followed by advice from financial advisors/brokers influence decisions pertaining to investments.

• • Investors with comparatively higher levels of diversification were found to make investment choices based on their own past experiences.