Behavioural Biases and SIP Discontinuation among Retail Mutual-Fund Investors of a Mysuru Distributor (SPSS)

Systematic Investment Plans (SIPs) are meant to be boring: a fixed amount every month, through every market cycle, so that rupee-cost averaging does its work. In practice many retail investors pause or cancel their SIPs when markets fall — precisely when units are cheapest — and restart after prices have recovered. This MBA project investigates why, using the lens of behavioural finance.

The study is carried out with the cooperation of a fictional AMFI-registered mutual-fund distributor, Kaveri Wealth Advisors Pvt. Ltd., Mysuru, which serves about 6,000 active SIP investors in Mysuru and Bengaluru. From its anonymised client list, 380 investors are selected by systematic random sampling and surveyed on five behavioural biases — loss aversion, herding, overconfidence, anchoring and the disposition effect — along with financial literacy, investment horizon and whether they discontinued any SIP during a market correction.

Data is analysed in SPSS: reliability (Cronbach's alpha), exploratory factor analysis to confirm the bias constructs, chi-square, t-test, ANOVA and correlation for group differences, and a binary logistic regression to estimate how each bias changes the odds of discontinuing an SIP. The deliverable is a report for VTU 22MBAPR407 Project Work (6 credits) with evidence-based recommendations for distributors on investor communication during downturns.

Abstract

This study examines the influence of behavioural biases on SIP discontinuation among 380 retail mutual-fund investors of a Mysuru-based distributor. Using a structured questionnaire, factor analysis and binary logistic regression in SPSS, it finds which of loss aversion, herding, overconfidence, anchoring and the disposition effect raise the odds of stopping an SIP during market corrections, and recommends distributor interventions.

(Abstract kept within VTU's 100-word limit.)

Introduction

Mutual-fund SIP inflows in India have grown steadily over the last decade, and SIPs are now the main route by which first-time retail investors enter equity markets. AMFI data also shows that a large number of SIPs are discontinued or not renewed each month. Traditional finance assumes investors act rationally on expected returns and risk; behavioural finance, building on Kahneman and Tversky's prospect theory, shows that people weigh losses more heavily than gains, follow the crowd and anchor on past prices. These tendencies can turn a disciplined plan into a pro-cyclical one.

Review of literature and research gap

Indian studies have documented the presence of biases such as overconfidence and herding among equity investors, usually through descriptive surveys of stock-market participants. Fewer studies connect biases to a specific, observable action — discontinuing an SIP — and most rely on convenience samples. Very few are conducted with a distributor's actual client base, where investment behaviour can be verified. This study addresses that gap with a probability sample drawn from a client list and a logistic model of the discontinuation decision.

Proposed study

• Identify and validate bias dimensions using factor analysis.
• Measure the level of each bias and compare across demographic groups.
• Estimate the effect of each bias on the probability of SIP discontinuation.
• Recommend communication and product-level interventions for the distributor.

Feasibility

• Technical: SPSS is available in the institute lab; the questionnaire runs on Google Forms with telephonic support.
• Economic: telephone and travel costs only; no fee to respondents.
• Operational: the host organisation provides an anonymised client list and a supervisor; the six-week fieldwork window after Semester 3 fits the VTU schedule.
• Ethical: investors are contacted only through the distributor with informed consent; no folio numbers, PAN or bank details are collected.

Kaveri Wealth Advisors observed that during the last significant market correction a noticeable share of its clients paused or cancelled their SIPs, and many restarted only after the index had recovered — locking in lower long-term returns. Relationship managers attribute this to "panic", but the firm has no evidence about which behavioural tendencies drive the decision or which investor segments are most vulnerable.

Existing research in India confirms that biases exist but rarely measures their effect on a concrete investment action within a verifiable client base. Without this, distributors send the same generic "stay invested" message to everyone, and the cost of discontinuation continues to fall on investors.

The problem for this study is therefore: to identify which behavioural biases — loss aversion, herding, overconfidence, anchoring and the disposition effect — significantly influence the likelihood of SIP discontinuation during market corrections among retail investors, and how these biases vary across demographic groups, so that the distributor can design targeted interventions.

Organisational scope: clients of Kaveri Wealth Advisors Pvt. Ltd. (fictional host distributor) with at least one equity or hybrid SIP active for 24 months or more.

Geographical scope: Mysuru and Bengaluru, Karnataka.

Content scope: five behavioural biases, financial literacy, investment horizon and self-reported SIP discontinuation (verified against the distributor's anonymised transaction flags where the client consents). Fund selection, scheme performance and tax aspects are outside scope.

Period: fieldwork during the six-week project window after Semester 3; discontinuation refers to the most recent market correction identified from index data.

Limitations: biases measured through self-reported Likert statements; results relate to one distributor's clients and may not represent direct-plan investors; cross-sectional design cannot prove causality.

Research design

Descriptive and explanatory (causal) research based on primary data from a structured survey, with secondary data from AMFI publications, SEBI investor-education material and index history to date the market correction.

Population and sampling

• Population (N): ≈ 6,000 active SIP investors of the host distributor.
• Sampling frame: anonymised client list (serial IDs only) supplied by the distributor.
• Sampling method: systematic random sampling — every 12th client after a random start, stratified by city in proportion to the client base (Mysuru ≈ 60%, Bengaluru ≈ 40%).
• Sample size (Yamane): n = N / (1 + N·e²) = 6000 / (1 + 6000 × 0.05²) = 6000 / 16 = 375, rounded to 380. With an expected response rate of about 80%, 475 investors are invited.
• Cross-check with Cochran (infinite population, p = 0.5, e = 0.05) gives 384 — the samples are consistent.

Instrument and scale design

Items are adapted from established behavioural-finance scales and reworded for Indian SIP investors. Content validity: reviewed by the internal guide and the host's senior relationship manager. Pilot: 30 investors; Cronbach's alpha ≥ 0.70 per construct. Construct validity: exploratory factor analysis (principal components, varimax), KMO ≥ 0.60 and a significant Bartlett's test; items loading < 0.50 are dropped.

Hypotheses and statistical tests

α = 0.05 throughout.

Timeline (20 weeks, Semester 3 end to Semester 4)