Investors Reneging in Mutual Funds: Financial Literacy as a Behavioural Buffer During Market Volatility
DOI:
https://doi.org/10.68219/nxs05475Keywords:
Behavioural Finance; Financial Literacy; Mutual Fund Investments; Loss Aversion; Investor Reneging; Queueing Theory; Market Volatility; Logistic Regression; IndiaAbstract
Many investors tend to withdraw their money from mutual funds when the market is going down this is a common behaviour, especially among small or retail investors in developing countries and it can affect their ability to build wealth over the long-term. Based on ideas from behavioural finance and a concept from queueing theory called “reneging” this study explains such action as Investment Reneging. This means that investors exit their investments before they get the expected returns, like how a person leaves a queue before receiving the service. Using primary survey data from 184 retail mutual fund investors in India (financial year 2025-26), the study employs binary logistics regression to identify the determinants of premature investment exit. Financial literacy is a statistically significant negative predictor of reneging (\beta\ = -1.412, p < 0.05), reducing the probability of exit by approximately 10% points at the sample mean and 25% relative reduction from the baseline. Loss aversion does not exert a significant direct effect, but its interaction with financial literacy is marginally significant (p <0.10), indicating that financial knowledge moderates how investors interpret potential portfolio losses. Results are robust to prohibit re-estimation and multicollinearity diagnostics. The findings highlight how important investor education is in helping people stay calm and make better decisions during market ups and Downs. The study brings together ideas from behavioural finance and queuing theory to create a new way of understanding investor behaviour. It also provides real data showing how financial literacy can influence decisions in emerging markets. Based on this the study suggests practical steps that organizations like SEBI and AMFI and asset management companies can take to support investors better.
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