NISM-Series V-A: Mutual Fund Certification Exam Notes
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Herd Mentality - 'Man is a social animal' - Human beings love to be part of a group.
Loss Aversion explains people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better not to lose Rs. 5,000 than to gain Rs. 5,000. Such a behavior often leads people to stay away from profitable opportunities, due to perception of high risks, even when the risk could be very low.
Overconfidence bias refers to a person's overconfidence in one's abilities or judgment. This leads one to believe that one is far better than others at something, whereas the reality may be quite different. Under the spell of such a bias, one tends to lower the guards and take on risks without proper assessment.
Recency bias - The impact of recent events on decision making can be very strong. A bear market or a financial crisis lead people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets. The recent experience overrides analysis in decision making.
Asset Allocation is a process of allocating money across various asset categories in line with a stated objective.
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