Financial Literacy and Investment Behaviour among Retail Investors: Examining the Mediating Role of Risk Tolerance through Structural Equation Modeling

Abstract

The research investigates how financial literacy affects retail investors' investment behavior in Uttarakhand by analyzing how risk tolerance functions as an intermediary factor. The growth of financial market participants during the previous years has demonstrated that financial knowledge serves as a crucial factor which determines how investors make rational investment choices. The available research from Uttarakhand presents a major knowledge gap because of its limited empirical studies which focus on the region. The researchers gathered primary data through structured questionnaires which they distributed to 300 retail investors for their study. The researchers used exploratory factor analysis and structural equation modelling to examine the data.The results demonstrate that financial literacy creates a positive effect which helps people understand risk better and make investment decisions. Investors who possess advanced financial expertise achieve higher levels of confidence when assessing financial products and they tend to take calculated risks. The research demonstrates that risk tolerance positively impacts investment activities through its significant connection to investment behavior. The mediation analysis results show that risk tolerance functions as a partial mediator which links financial literacy with investment behavior. The measurement and structural models demonstrate adequate reliability and validity together with acceptable model fit indices.The research findings demonstrate that financial literacy development enables investors to make better decisions while they participate in financial markets with greater understanding. The study offers new evidence about developing state contexts which helps academic research while providing financial institutions and policymakers and educators with practical tools to advance financial inclusion and responsible investing.