Decoding Investor’s behavior in tax saving mutual fund: A multi-item scale for evaluating investors’ category

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This study aims to design and validate a multi-item scale for assessing the investment behavior of investors in tax-saving mutual funds, with a particular focus on Equity Linked Savings Schemes (ELSS). Additionally, the research seeks to identify clusters of investors with similar personality traits, offering deeper insights into how these traits influence investment decisions. By examining the interplay between capital, personality characteristics, and investment behavior, the study underscores their critical role in fostering economic growth. Despite the growth in mutual fund assets under management (AUM) in India, there is a discrepancy in the inflow to Equity Linked Savings Schemes (ELSS), indicating that investor behavior is influenced by a combination of financial and behavioral factors. Through an extensive review of the literature, the study identifies key gaps in existing research on investor psychology, particularly in relation to ELSS investments, emphasizing the need for a more nuanced understanding of the psychological factors shaping investor decision-making in this area. Using a structured questionnaire, the study gathered data from 489 mutual fund investors to explore the financial and behavioral factors influencing their investment decisions. Factor analysis was employed to identify key factors affecting these decisions, and reliability tests like KMO and Bartlett’s were applied to ensure the adequacy of the sample. The findings reveal two main factors related to financial considerations—Informative cum Magnetize Factors and Inadmissible and Undesirable Benefits—as well as behavioral factors such as overconfidence, anchoring, and herding that significantly impact investor behavior. The study concludes that a deeper understanding of these factors can help categorize and address investor needs, ultimately enhancing participation in tax-saving mutual funds. It also helps regulators in policy-making as per the clusters of Investors.