The promise and the paradox
Digital rails, fintech apps and low-cost distribution have vastly expanded access to financial products to individuals in emerging economies like India. Yet many households still do not participate in capital markets and are not keen or regular investors. Access alone has not translated into broad, sustained participation in the markets. Behavioural finance is the study of how people actually make financial decisions. It asks a simple question: if psychology shapes choices, can we nudge those choices toward better, more inclusive outcomes when it comes to a more inclusive investment ecosystem?
What is behavioural finance?
Behavioural finance studies how emotions, biases and social forces affect financial decisions. Classic economic models assume people are fully rational. Behavioural approaches do not. They recognise patterns such as loss aversion, anchoring, overconfidence and herd behaviour. These patterns matter because they shape whether someone opens a broking account, starts a small systematic investment plan (SIP) or avoids equity markets entirely.
The state of financial inclusion today (2024–25)
Access has grown fast in India, especially with the penetration of digital devices and the pervasiveness of the internet. Mutual fund folios in India reached record highs in 2024–25, reflecting rising retail engagement through digital platforms.
Image credit: AMFI
UPI has put payments within reach of hundreds of millions, creating a digital habit that can be leveraged for savings and investment.
Still, a large participation gap remains. A 2025 SEBI investor survey found that only about 9.5% of Indian households actively invest in securities despite much higher awareness. That gap points to psychological and informational barriers, not just infrastructure shortfalls.
Image credit: NPCI
Where behavioural finance can make a practical difference
Behavioural insights are not abstract. They inform concrete product and policy design that can lower barriers and build habits.
Nudges and defaults. Auto-enrolment, simple default allocations and gentle reminders convert inertia into action. Default choices help people start small and stay disciplined.
Simplified choices. Curated menus of funds or goal-based wrappers reduce paralysis by choice. People pick a clear path when the options are framed around real goals, not product jargon.
Visual and timely disclosures. Simple dashboards and short, plain-language risk summaries cut through complexity. That improves trust and decision quality.
Gamification and behavioural design in fintech. Several Indian investment platforms now use progress trackers, milestone nudges and simple goal visuals to keep new investors engaged. These features can turn one-time curiosity into steady saving behaviour.
Image credit: Fortune India
Real examples from India
- Awareness campaigns that moved the needle. The Association of Mutual Funds in India (AMFI) ‘Mutual Funds Sahi Hai’ campaign helped normalise mutual funds and promote systematic investing. The campaign, first launched in 2017, remains a central example of simple messaging scaling investor awareness.
- Fintech behavioural features. Leading platforms have invested in user experience and nudges, right from SIP reminders to milestone badges, which research and industry reporting link to higher onboarding and retention. This is part of why digital channels drove a surge in mutual fund folios in recent years.
Challenges, limits and ethical concerns
Behavioural finance has changed how we think about money, but applying it in real markets brings its own complications. Not every nudge works as intended. Human behaviour is unpredictable, and what motivates inclusion for one group may discourage another. As emerging economies rely more on technology-driven platforms and behavioural design to guide investors, new ethical and practical questions arise.
Risk of manipulation
Poorly designed nudges can push people toward products that benefit sellers more than buyers. Regulators must guard against ‘dark patterns’.
Cultural and contextual variation
A nudge that works in one region or demographic may fail in another. Behavioural design requires local testing.
Oversimplification
Reducing complexity is good. Oversimplifying risk or returns is not. Transparency and consumer protection must stay central.
Policy and industry implications: How to scale responsibly
If policymakers and firms want behavioural finance to support inclusion, they should act on three fronts.
- Design responsible defaults. Use auto-enrolment for small, opt-out saving plans tied to pensions or payroll. That makes saving habitual.
- Mandate and standardise simple disclosures. Regulators can require short, standardised risk summaries and visual tools so retail investors can compare offerings easily.
- Support fintech experimentation with guardrails. Encourage product pilots, but pair them with oversight, independent evaluation and rules against exploitative design.
Public campaigns and private UX improvements should complement each other. Awareness alone rarely sustains behaviour. What works are good design, responsible defaults and regular follow-ups.
Countries with stronger retail participation combine supply-side ease with behaviourally informed policy. For example, many pension reforms worldwide use defaults and auto-escalation to improve long-term saving rates. Emerging markets can adapt those ideas while tailoring them to local norms, digital reach and literacy levels.
The way forward: Education, design and trust
Behavioural finance is not a silver bullet. It is a toolset to make financial systems more humane. To close the gap between access and participation, emerging economies need to combine the following:
- Clear, goal-oriented product design
- Trusted defaults and safeguards
- Ongoing financial education that addresses emotions, not only facts.
Business schools and policy programmes can help. At SPJIMR’s PGPM, participants study real product design, governance and the behavioural side of markets. That training prepares future leaders to build inclusive products and thoughtful regulations.
Behavioural finance can help build a more inclusive investment ecosystem. But it will not do so on its own. Structured design, sensible regulation, and a commitment to investor welfare must accompany nudges and UX. When these elements combine, they convert access into sustained participation. That is the path to an investment ecosystem that works for everyone.
