Analysis of Financial Literacy Level of Retail Individual Investors of Gujarat State and Its Effect on Investment Decision

Abstract

This study attempts to assess the financial literacy level of retail individual investors in the state of Gujarat, India and its effect on their investment decision. The data collection instrument consisted of a performance test and questionnaire. The performance test was used to measure the financial literacy level of investors. The median percentage of correct answer of the sample was considered to frame the financial literacy level. Forty-four variables of investment decision were studied. Out of a total of 385 respondents, 39.20% of the respondents are considered investors with a higher level of financial literacy and 60.80% of respondents are considered investors with a relatively lower level of financial literacy. This study found that financial literacy does have a statistically significant effect on the investment decision of investors.

KEYWORDS:

• financial literacy
• investment decision
• regression analysis

Notes

¹Retail individual investor means an investor who applies or bids for specified securities for a value of not more than two lakhs rupees. This definition is given in SEBI (2012, p. 4).

²See OECD (2005, pp. 43–44). In the 2005 ANZ survey of financial literacy, 67% of respondents said that they understood the principle of compound interest, but only 28% were rated with a “good level” of comprehension when they solved an actual problem.