A MULTI-DIMENSIONAL ANALYSIS OF RISK–RETURN APPETITE OF RETAIL INVESTORS IN INDIA

Economics and Finance

India’s capital market has undergone profound structural change over the past three decades, reshaping how retail investors perceive risk and reward. Traditional models such as Modern Portfolio Theory and CAPM provided the earliest foundations for understanding investment behaviour; however, these rational frameworks proved insufficient to explain the consistently inconsistent, emotionally driven, and culturally influenced decisions of Indian investors. This paper presents a 360-degree review of the factors shaping retail investors’ risk–return appetite, integrating insights from more than 100 classical and behavioural studies conducted across India and other emerging economies. The review synthesises five major streams: (a) classical economic theories of portfolio choice, (b) psychological and behavioural biases, (c) demographic and socio-cultural determinants, (d) market structure, regulatory issues, and macroeconomic forces, and (e) digital-platform, media, and social-network influences. By combining these diverse strands, the study develops an integrated conceptual framework capturing India-specific investor behaviour, highlighting the unique interactions between culture, family systems, market accessibility, media narratives, and behavioural biases. The review concludes that Indian retail investors do not fit neatly into classical rational models; instead, they operate within a hybrid decision-making environment shaped by emotions, family influence, cultural rituals, incomplete information, technological gaps, and regulatory trust. The findings highlight the urgent need for inclusive financial literacy, behaviour-correcting interventions, and region-specific investment education to enable sustainable participation in the capital market.

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