Role of Financial Literacy in Investment Decisions: Exploring the Individual Investors’ Perspective through a Qualitative Approach

Abstract

Purpose: This study aims to explore phenomenal role of financial literacy on investment decisions. Financial literacy enables the individuals to manage their financial resources through pursuing alternative investment opportunities and portfolio diversification. Individual investors tried to balance their income-expenditures by availing latest investment opportunities in stocks, bonds, shares and financial instruments of the companies through stock exchanges, conventional and non-conventional investment channels. In current economic situations low stock prices, capital gains, financial interest, stock market rumors induce individual investors to trade in stock markets. As these indices, provide fair opportunities of investment as compared to bank deposits and other modes of investments. However, financial literacy (FL) offers a bridge to investors for making sound investment decisions through the best utilization of resources. Methodology: This study is based on the exploration of the role of financial literacy from individual investor’s perspective. Therefore, research method for this study is ‘Grounded theory’ under the qualitative approach. For the purpose of data collection, researcher conducted in-depth personal interviews. NVIVO software has been used for qualitative analysis of the data gathered through interviews. Different techniques such as, Word Tag Cloud, Word Tree and Tree Map were used to elaborate the themes of the study. Findings: This study found that financial literacy, economic, political and market factors influence the quality of investment decisions of the individuals. Moreover, rumors in financial markets also affect the investment decisions of the individuals. Implications: This study provide better outlook about the FL and investment decisions made by people based on knowledge about finance. Generally, financial activities are performed in financial markets divided into two categories; primary and secondary markets.