Behavioural traps in online investing: Reflections on World Investor Week

As India deepens financial inclusion through digital tools, World Investor Week 2025 urges regulators and citizens to address behavioural biases, fraud risks, and digital trust gaps

Access to investing has expanded dramatically through digital platforms and mobile tools, aided by the JAM Trinity and Aadhaar-enabled services. Yet, the behavioural vulnerabilities of investors remain as prominent as ever. For policymakers and regulators, the challenge lies not just in widening participation but in ensuring that it is meaningful, safe, and resilient. World Investor Week 2025 offers an opportunity to reflect on the evolving relationship between people and financial markets.

 

The traditional assumption that investors make rational decisions by weighing risk against return has long been unsettled by behavioural finance. Research by Daniel Kahneman, Amos Tversky and others shows that financial decisions are often guided by fear, instinct, and cognitive shortcuts as much as by hard data. Investors cling to losing stocks rather than admit a mistake while selling off “winning shares”; anchor their decisions to not-so-relevant reference points; or follow the crowd or peers in times of frenzy and panic.

 

Overconfidence can sometimes create an illusion of control, leading to excessive trading and increased risk-taking. Such tendencies are not mere limitations in individual decision-making; they have systemic consequences, intensifying volatility and deepening cycles of boom and bust. These vulnerabilities have magnified in today’s digital landscape. 

 

The speed and ease of online investing means that decisions once made slowly are now executed in seconds, often in haste, with little research, introspection and reflection. Social media amplifies this tendency. Platforms are flooded with 'finfluencers'—self-styled experts dispensing quick tips, advice and high-risk recommendations to audiences that may lack the financial literacy to assess them. The viral nature of online content rewards hype over prudence, encouraging herd behaviour and speculative bubbles. For budding investors, many of whom are entering markets for the first time, the flood of information often blurs the line between credible advice and reckless speculation.

 

The impact of digitalisation is, therefore, two-fold. On one hand, it has dramatically improved access for people in small towns and rural areas, who can now invest in mutual funds, equities or digital gold using a smartphone. Financial inclusion has been powered by mobile banking, fintech apps, and AI-driven advisory tools.

 

However, this access also exposes investors to new risks. Online scams, phishing attacks and fraudulent investment schemes exploit both technological gaps and behavioural blind spots. The rising number of digital fraud cases shows that even educated, tech-savvy users can fall prey when urgency and greed are manipulated.

 

For policymakers, the central question is whether investor protection is keeping pace with innovation. Awareness campaigns like World Investor Week are vital but insufficient on their own. Regulators must integrate behavioural insights into rule-making, monitor the digital ecosystem closely, and track how information spreads online. A robust framework for regulating finfluencers, stronger safeguards against fraud, and accessible grievance redressal mechanisms are now as critical as traditional compliance measures. 

 

At the heart of all these efforts lies financial education. For too long, literacy has been viewed as a personal responsibility, a skill that individuals have the option to acquire to help themselves. In a world where digital finance is universal, this is no longer tenable. It must instead be treated as a public good—essential to economic inclusion and systemic stability. A citizen unable to understand risk, resist scams or recognise manipulative advice not only endangers personal finances but weakens the broader financial ecosystem.

 

India’s institutional framework for investor protection has expanded significantly in recent years. Regulators such as the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA), and the Pension Fund Regulatory and Development Authority (PFRDA), along with Market Infrastructure Institutions (MIIs) and industry associations, have all been active in promoting financial education.

 

The Investor Education and Protection Fund Authority (IEPFA), under the Ministry of Corporate Affairs, plays a pivotal role. Beyond its mandate of reclaiming unclaimed dividends, deposits, and matured debentures, IEPFA is emerging as a protector of investors, conducting awareness drives, offering financial literacy modules, and partnering with stakeholders to promote informed participation. Outreach to different groups such as women, students, and first-time investors requires tailored strategies.

 

India has made commendable progress in expanding financial education. From integrating personal finance modules into school curricula to outreach by NGOs and community organisations, the architecture for awareness is steadily taking shape. Fintech collaborations and mobile platforms have widened reach further, drawing first-time investors into formal finance. 

 

Yet, as the ecosystem grows more complex, financial literacy must evolve. It must now include skills like filtering misinformation on social media, recognising behavioural traps such as herd mentality, and understanding grievance redressal mechanisms and digital safeguards.

 

The behaviour of budding investors merits particular attention. Many display a blend of caution and boldness—some adopt conservative strategies shaped by family experiences of economic shocks, while others chase high returns through speculative trading in cryptocurrencies or volatile stocks. These patterns underscore the need for adaptive literacy programmes designed for diverse demographic realities.

 

Markets mirror human behaviour as much as they reflect economic fundamentals. Narratives shape choices as numbers shape trends. The stories investors tell themselves about risk and opportunity can influence markets as powerfully as interest rates or fiscal policy. Recognising this truth is the first step towards building resilience.

 

Are citizens being prepared to make informed, confident decisions in a digital-first world? Are regulatory protections adequate to counter both traditional fraud and the new risks born of online platforms? Are policymakers willing to treat trust and behavioural awareness as seriously as they treat financial access? World Investor Week is an occasion to judge not in the number of events held but in the introspection it provokes. It demands more than slogans and seminars; it needs to be remembered as a turning point, a moment when we acknowledged that investor protection cannot be divorced from psychology, and that digitalisation must be paired with digital trust. Investing is never just about money; it is also about behaviour, confidence, and the ability to resist the seduction of unbelievable, false promises. Policymakers need to embrace a behavioural perspective to building more inclusive markets, parallelly funding digitally innovative ways and means to safeguard the financial future of millions of citizens.