Retail Investor Participation and Trading Behaviour in India's Equity Markets: A Behavioural Finance Review

Abstract

Retail participation in India's equity markets has expanded at an unprecedented pace. The number of demat accounts crossed 150 million for the first time in March 2024 and reached about 234 million by July 2026, driven by low-cost digital brokerages, simplified onboarding and strong market returns. Much of the new activity, however, has flowed into equity derivatives, where outcomes for individuals have been poor. Studies by the Securities and Exchange Board of India (SEBI) show that 93 per cent of more than one crore individual futures and options traders made losses between 2021-22 and 2023-24, with aggregate losses exceeding ₹1.8 lakh crore, and that 91 per cent made losses in 2024-25. This paper reviews the behavioural finance literature that helps explain these outcomes and examines the policy response. Using a structured narrative review of peer-reviewed studies and SEBI publications, it organises the evidence around three themes: the drivers of retail participation, the behavioural biases that shape trading decisions, and the effects of regulation. The review finds that overconfidence, attention-driven trading, lottery preferences and learning from random outcomes, all well documented internationally and in India, are consistent with the observed pattern of frequent, loss-making derivative trading. SEBI's October 2024 measures were followed by a 20 per cent decline in unique traders, although aggregate losses rose in 2024-25. The paper discusses implications for regulators, brokers and investor education and proposes a research agenda on fintech design, investor learning and long-term wealth outcomes.