TOPIC: Analysing Overconfidence in

Alternative Investment Funds: India

SUBJECT: BEHAVIOURAL FINANCE

Submitted by
NIMISH SINGH
(31522108)
Submit to
Prof. C. Arun Kumar
Analysing Overconfidence in Alternative
Investment Funds: India
Topics cover:

I. Introduction…… 2
 Methodology Used…… 2
II. Analysis and Findings…… 3
 Analysing Overconfidence in AIF Investments: A Case Study…… 3
 Statistical analysis to identify correlations between high-risk investments and
lower-than-expected returns…… 6
 Mathematical Model Approach…… 9
 Findings…….10

III. Suggestions and Conclusion…… 12-13

IV. References…… 13

Introduction:
Welcome to this report which delves into how behavioural finance principles can be used to analyse the
investment activities of Alternative Investment Funds (AIFs) in India. Unlike traditional finance, behavioural
finance recognizes that emotions and biases can impact investor behaviour. We will explore how these biases
could potentially shape AIF investment strategies and overall returns.

Methodology:
• We can use statistical analysis to uncover the connections between human behavioural biases and the
investment decisions and performance of AIF.

• By examining real-life examples of different AIF, we can gain a better understanding of how biases may
impact their decision-making.

• If possible, we can interview the managers of AIF to gain insights into their thinking patterns and possible
biases that may sway their investment decisions.

Examining the problem of overconfidence in AIF investment decisions: Real-life lessons This dataset offers
valuable insights on assessing overconfidence among AIF managers in India. Let's explore how we can leverage
it to examine the potential link between risk profile and performance:

1. Analysis of Risk Profile:

• High-Risk Category: Identify the group with the largest percentage of investments in high-risk assets.
According to the data, Venture Capital Funds (VCFs) stand out with the highest commitment value (Rs.
52,057.17 Cr) and investment amount (Rs. 36,935.42 Cr). This indicates that VCFs could serve as a
strong initial focus for our analysis.
2. Performance Evaluation:
• Return on Investment (ROI) Data: The data provided lacks ROI information for each AIF category. To
evaluate overconfidence, it would be beneficial to compare the risk profile (VCFs in this instance) with
their actual returns.
 • Alternative Approach: An alternative method would be to analyse the variance between "Commitments
Raised" and "Funds Raised." This discrepancy could suggest difficulties in raising the full committed
amount, possibly due to investor reluctance towards a high-risk profile (implying VCF managers might
have excessive confidence in their ability to generate returns despite the risk).

Case study:

Case studies are being conducted on certain Venture Capital Funds (VCFs) that have high investment amounts.
The goal is to analyse their investment strategies, target markets, and historical performance. The focus is on
identifying cases where aggressive investment strategies led to lower-than-expected returns, possibly due to
overconfidence in their ability to choose successful startups.

Limitation:

There are limitations to this study, including the absence of Return on Investment (ROI) data in the dataset being
used. Additionally, it is challenging to isolate overconfidence as the only factor affecting investment decisions.

Analysing Overconfidence in AIF Investments: A Case Study:

Overconfidence: "Sometimes, AIF managers can be too confident in their ability to beat the market, which can
lead to making riskier investments or skipping thorough research.

• When looking at AIF investments, such as the percentage in high-risk assets, it's important to compare
them to actual performance. By analysing whether there is a link between high-risk investments and lower
returns, we can see signs of overconfidence.
• Statistical analysis can help spot connections between behavioural biases and the decisions and outcomes
of AIF investments.
• Delving into case studies of specific AIFs can offer a deeper understanding of how biases play a role in
their decision-making process."
• We can use statistical analysis to find connections between behavioural biases and AIF investment
decisions and performance.
• Conducting case studies on specific AIFs can give us a better understanding of how biases may impact
their decision-making.
• If possible, interviewing AIF managers could help us uncover their thought processes and any biases that
may influence their investment decisions.

Table1. (All figures in Rs. Crores) 2023 Quarter-wise dataset

(below)

Commit Commit Commit Commit Invest Invest Invest Invest

Categor Funds Funds Funds Funds
ments ments ments ments ments ments ments ments
y of Raised Raised Raised Raised
Raised Raised Raised Raised Made Made Made Made
AIF Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Categor
yI

Infrastru
18,738.0 17,728.6 17,569.5 15,581.2 8,380.2 5,719.7 5,803.0 5,466.1 5,469.3 4,489.5 5,000.1 4,742.6
cture
8 0 3 2 8 1 8 1 3 4 0 4
Fund
 Social
Venture 1,419.93 1,402.55 1,501.24 1,473.04 641.03 523.8 692.77 564.51 258.43 252.75 447.9 331.33
Fund

Venture
52,057.1 48,506.9 43,529.4 41,725.7 29,488. 24,670. 22,563. 22,190. 36,935. 20,553. 19,238. 18,886.
Capital
7 3 0 5 41 94 88 93 42 81 55 42
Fund

SME
1,158.22 1,140.72 1,136.22 149.33 671.78 522.27 341.95 61.64 597.45 461.73 289.2 52.19
Fund

Special
Situatio 228 0 0 0 225.35 0 0 0 225.35 0 0 0
n Fund

Categor
73,601.4 68,778.8 63,736.3 58,929.3 39,406. 31,436. 29,401. 28,283. 43,485. 25,757. 24,975. 24,012.
y I
0 0 9 4 84 72 68 19 98 82 75 58
Total

Categor 8,83,215. 7,82,115. 6,96,132. 6,93,945. 3,08,47 2,85,35 2,70,24 2,66,29 2,67,91 2,48,90 2,52,83 2,42,91
y II 62 70 37 44 1.96 1.45 1.46 6.21 1.24 8.07 0.87 5.09

Categor 1,28,058. 1,03,502. 85,057.7 80,899.5 81,676. 71,748. 74,482. 71,029. 88,255. 78,686. 72,499. 71,055.
y III 26 84 2 7 42 83 64 83 97 59 55 10

Grand 10,84,87 9,54,397. 8,44,926. 8,33,774. 4,29,55 3,88,53 3,74,12 3,65,60 3,99,65 3,53,35 3,50,30 3,37,98
Total 5.28 34 48 35 5.22 7.00 5.78 9.23 3.19 2.49 6.17 2.77

Reference: SEBI reports on AIF performance

Add columns for total commitments and total investments

Total_Commitments = Commitments_Raised_Q1 + Commitments_Raised_Q2 + Commitments_Raised_Q3 +

Commitments_Raised_Q4

Total_Investments = Investments_Made_Q1 + Investments_Made_Q2 + Investments_Made_Q3

+Investments_Made_Q4

Table 2.

Category I Investment Percentage

Infrastructure Fund 28.30
Social Venture Fund 22.26
Venture Capital Fund 51.46
SME Fund 39.07
Special Situation
Fund 98.84
From table 1
Calculate the percentage of investments relative to commitments raised
Investment Percentage = (Total Investments / Total Commitments) * 100

Visualize the risk profile of AIF investments

The chart shows the breakdown of investments in Alternative Investment Fund (AIF) and what it means from a
behavioural finance standpoint.

Investment Risk in AIFs According to the graph, the Infrastructure Fund has the lowest percentage of
investments compared to the total commitment. This suggests that investors are more conservative in their
approach to investing in infrastructure projects.

Small and Medium Enterprises (SME) Fund: The SME Fund has a moderate investment percentage, making
SMEs appear to have a moderate risk and return potential in the eyes of investors.

Social Venture Fund: Just like the SME Fund, the Social Venture Fund also has a moderate investment
percentage. Social ventures combine financial returns with social impact, potentially affecting investor
decisions.

Special Situation Fund: Investors assign a higher percentage of investments to the Special Situation Fund,
which likely includes unique opportunities or distressed assets that appeal to risk-tolerant investors.

Investors are often attracted to Venture Capital Funds because of the promising opportunities for significant
returns. The fund distinguishes itself by offering a higher investment percentage, which appeals to those seeking
potential lucrative outcomes. Motivated by cognitive biases such as overconfidence and the attractiveness of
high-risk, high-reward situations, investors are lured towards this form of investment.

Insights on Behavioural Finance Herding Behaviour: A possible reason for the increased allocation to
Venture Capital Fund could be attributed to herding behaviour. Investors often tend to follow the crowd,
particularly with high-potential investments.
 • Overconfidence: The eagerness to make substantial investments in venture capital could indicate
overconfidence. Investors may have a belief in their ability to outperform the market or choose
successful startups.
• Prospect Theory: The appeal of significant gains (known as the "prospect effect") may attract
investors to venture capital. The fascination with success stories and unicorn startups can also
contribute to this interest.
• Loss Aversion: Even though there is a high level of risk involved, investors tend to pay more attention
to the possible gains rather than the potential losses. This mindset of avoiding losses can cause them to
disregard the dangers linked with venture capital.

To sum up, the risk characteristics of AIF investments demonstrate a combination of logical decision-making
and behavioural prejudices. Grasping these interactions is essential for both investors and fund managers.

Statistical analysis to identify correlations between high-risk investments and lower-

than-expected returns:
Additional data on actual performance (returns_cagr or other metrics) & Merge the returns data with the original
dataset (percentage of investments relative to commitments raised). Compound Annual Growth Rate (CAGR)
can be a useful tool for understanding investment returns, particularly when specific return data is not readily
available. The relationship between CAGR and returns is typically positive and the report section of the
References in the provided text mentions the evidence for choosing CAGR as the rate of return.

Table 3. risk- return profile of AIF investments

% of investments relative to
Category I Commitments return_cagr in %
Infrastructure Fund 28.30 10.00
Social Venture Fund 22.26 34.00
Venture Capital Fund
51.46 34.00
SME Fund 39.07 39.78
Special Situation
Fund 98.84 7.79

Reference: SEBI reports on AIF performance & References in the Provided Text below

Analysing AIF Investment Decisions: A Behavioural and Statistical Approach In this study, we explore the risk
profiles of Alternative Investment Funds (AIFs) in India, with a particular emphasis on how investor behaviour
impacts decision-making.

Statistical Findings: Our analysis revealed a negative correlation coefficient of -0.497491 between the
percentage of investments compared to commitments and the Compound Annual Growth Rate (CAGR) return
for different AIF categories in 2023. This suggests a somewhat negative relationship. While there is a trend for
lower investment percentages to be associated with higher returns, it is not a completely inverse correlation.
This is depict the theory of loss aversion.

Conducting case studies and interviews with AIF managers would provide deeper insights into the
decision-making process and potential biases influencing investment choices.

Looking at it from a behavioural finance perspective, the idea of loss aversion comes into play with this negative
correlation. People tend to react more strongly to the possibility of losing money than they do to the possibility
of gaining money. This can result in:
 1. Anchoring Bias: Investors may rely too heavily on their initial investment decisions, failing to update
their investments according to the actual risk and return outlook. This could clarify why significant
portions of investments are put into categories that haven't performed well in the past.
2. Overconfidence: Investors sometimes have too much confidence in their skills to choose top-
performing AIFs, which can make them more inclined to invest in riskier categories such as Venture
Capital Funds, even if the returns may be lower.

Short-Term Focus and Loss Aversion: The focus on 2023 data strengthens the argument for loss aversion.
Investors might be more risk-averse in the short term, prioritizing avoiding losses over maximizing gains. This
could lead to a preference for established categories (even with lower potential returns) over newer, potentially
high-growth but riskier alternatives.

Behavioural Biases and Loss Aversion:

Loss aversion is a psychological phenomenon where individuals perceive losses as more significant than
equivalent gains.

Investors have a utility function that considers loss aversion when making decisions. This function is broken
down into components:

 𝑈(𝑊): This represents the investor's utility function, with 𝑊 representing their current wealth.
 𝐿: This is the reference point, usually the initial investment or a predefined benchmark.
 𝑘: This reflects the level of loss aversion. A higher 𝑘 means a stronger aversion to losses. The utility
function is defined as follows:

𝑈(𝑊)= { 𝑊−𝑘(𝑊−𝐿)^2 if 𝑊>𝐿 ; 𝑊 if 𝑊≤𝐿}

This function describes how investors make decisions in different situations:

1. When wealth is greater than a reference point (W > L):

 The investor's utility function is concave, showing that they value each additional unit of wealth less
than the previous one.
 Loss aversion is taken into account with the quadratic term (W - L)^2. A higher value of the parameter
"k" means the function becomes more curved, indicating a stronger aversion to losses. - The parameter
"k" determines how much more losses are weighed compared to gains. A higher "k" value results in a
greater decrease in utility for the same loss.

3. When an individual's wealth is less than or equal to a certain reference point, their utility function
becomes linear. In this situation, there is no punishment for experiencing losses compared to the
reference point. This specific utility function reflects the investor's tendency towards loss aversion,
impacting how they take risks and make decisions. By manipulating the variables 𝑊, 𝐿, and 𝑘, we can
 simulate different investor preferences and analyse how they affect portfolio allocation and risk
management techniques.

In summary: The findings show that there may be an impact of behavioural biases on AIF investment decisions,
although it is not definite. More comprehensive research with a bigger dataset and over a longer period of time
could offer stronger insights. Nevertheless, this initial examination emphasizes the significance of taking
behavioural aspects into account alongside traditional risk-return analysis when assessing AIF investment
prospects.

Interpretation of risk- return profile of AIF investments

Table 3. risk- return profile of AIF investments

% of investments relative to return_cagr
Category I Commitments in %
Infrastructure
Fund 28.30 10.00
Social
Venture Fund 22.26 34.00
Venture
Capital Fund 51.46 34.00
SME Fund 39.07 39.78
Special
Situation Fund 98.84 7.79

Reference: SEBI reports on AIF performance & References in the Provided Text below

1. Overview of the Data Table:

 The table provides information on five different fund categories: Infrastructure Fund, Social Venture
Fund, Venture Capital Fund, SME Fund, and Special Situation Fund.
 For each category, we have:

 % of investments relative to Commitments: The proportion of actual investments made

compared to the total committed capital.
 Return (CAGR): The annualized return over the one-year period.

Let’s analyse how this bias might impact investment decisions in the context of these fund categories:
1. Infrastructure Fund:

 Investors might exhibit loss aversion by holding onto underperforming infrastructure funds
longer than necessary. The fear of realizing a loss could lead them to wait for a rebound,
missing out on other lucrative opportunities.
 The pain of losing capital in infrastructure investments may outweigh the logical decision to
sell and reinvest elsewhere.

2. Social Venture Fund:

 Given the strong performance (34% CAGR), investors may exhibit recency bias. Recent
success might lead them to assume continued outperformance, potentially causing them to
invest more heavily in this category.
 Conversely, if the fund underperformed recently, investors might avoid it, even if its long-
term prospects are solid.
 3. Venture Capital Fund:
 The high allocation (51.46%) suggests investor confidence. However, loss aversion could
make them reluctant to exit even if the fund underperforms.
 Investors may hold onto declining venture capital funds, hoping for a rebound, rather than
reallocating to other opportunities.
4. SME Fund:
 The substantial allocation (39.07%) indicates investor interest. However, loss aversion might
cause them to hold onto underperforming SME funds.
 The fear of realizing a loss could prevent timely exits, impacting overall returns.
5. Special Situation Fund:
 Despite a lower return (7.79% CAGR), the high allocation (98.84%) suggests strong
commitment.
 Loss aversion could lead investors to hold onto this fund, hoping for a turnaround, even if
other options offer better returns.

Analysing AIF Data (mentioned above) using the information provided in the content of
Behavioural Finance report: A Mathematical Model Approach:
The data you have gives us a chance to delve into the behavioural finance side of AIF investments, especially
using a practical model. Here's a summary of the analysis: Analysing the

Data: The table displays the percentage of investments compared to commitments and the Compound Annual
Growth Rate (CAGR) returns for different AIF categories in India. Here are a few initial findings:

 Strong Dedication versus Minimal Profitability: Special Situation Funds show a significant commitment
level at 98.84%, yet yield the lowest return at 7.79%. One possible explanation could be attributed to
excessive confidence or anchoring bias, where focus is placed disproportionately on initial
commitments.
 Disparity between Venture Capital and SME Investment: Despite Venture Capital Funds (VCFs) and
SME Funds delivering comparable returns (approximately 34%), VCFs exhibit a higher investment
percentage at 51.46% compared to SME Funds at 39.07%. This trend may indicate a preference towards
VCFs despite potentially similar risk-return characteristics.

Behavioural finance is an important consideration in investment decisions:

 Overconfidence: AI managers may overestimate their skills in beating the market, leading them to invest
more in risky categories such as VCs even if the returns may be lower.
 Anchoring Bias: Investors tend to focus too much on their initial decisions and are hesitant to make
changes based on actual performance, as seen in Special Situation Funds.
 Herding Behaviour: Investors often follow the crowd and invest in popular categories like VCs, even
without fully understanding the risks involved.

Mathematical Model (Heuristic Approach): A straightforward heuristic model can be created to simulate
possible biases that affect investment decisions. Here is a basic outline:

• Variables:

 investment_pct: Percentage of investment compared to commitment for each category (existing

data).
 expected_return: Investor's predicted return for each category, which may be based on historical
data or industry standards.
 risk_tolerance: Investor's comfort level with risk (low, medium, high).
 bias_factor: A factor representing the impact of a particular bias (such as overconfidence,
anchoring). This value can range from 0 (no bias) to 1 (strong bias).
 Investment Decision Rule:

investment_decision=(expected_return*(1−bias_factor))+(risk_tolerance*bias_factor)*investment_pct

 Interpretation:
 The model takes into account both expected return (adjusted by bias) and risk tolerance (weighted by
bias) when determining the actual investment percentage.
 A stronger bias factor amplifies the impact of bias, such as overconfidence potentially leading to
increased investments in riskier categories despite lower expected returns.

Limitations: In simple terms, this model has its limitations as it does not account for all the intricacies of how
investors behave. More research and adjustment is needed to accurately assign numerical values to bias factors.

In conclusion, analysing the information from a behavioural finance perspective and delving into a heuristic
model can help us understand the possible biases that impact AIF investment choices. This basic model serves
as a foundation for future research and enhancements to create stronger models that assist investors, AIF
managers, and regulators in making well-informed decisions.

Finding:
Practical Implications:

 Investors should recognize their loss aversion tendencies and strive for rational decision-making.
 Adopting a strategic asset allocation strategy rather than timing the market can help mitigate
emotional biases.
 Regular portfolio rebalancing ensures that winners are not sold too soon and losers are not held
indefinitely.

When it comes to making investment decisions, having a good understanding of behavioural biases can help
you make better choices and improve your financial outcomes. Do you know what risks are associated with
each fund category? Let's take a look at the risk factors for Infrastructure Funds:

1. Infrastructure Fund:
 Market Risk: Infrastructure funds are affected by market fluctuations, which can be influenced by
economic conditions, interest rates, and changes in regulations. These factors can impact the success
of infrastructure projects.
 Project-Specific Risks: These funds typically invest in specific projects such as roads, bridges, and
utilities. Issues like project delays, cost overruns, or operational problems can have a negative impact
on the returns from these investments.
 Liquidity Risk: Infrastructure assets may not be easily tradable, which can lead to challenges with
liquidity for investors.

2. Social Venture Fund:

 Impact Risk: Social Venture Funds prioritize social and environmental impact. If the desired results
are not met, returns may be affected.
 Early-Stage Risk: Investing in early-stage startups or social enterprises comes with higher risks due to
uncertainties and limited track record.
 Market Risk: Social ventures are still subject to market dynamics.
3. Venture Capital Fund:
 High Risk: Venture capital funds invest in startups, which come with a high risk of failure. However,
successful exits can result in significant returns.
 Illiquidity: Investments in startups are typically illiquid, meaning they cannot be easily sold or
converted into cash. Investors often have to hold onto their investments for long periods of time.
 
Market Risk: Economic downturns can impact the survival and exit opportunities of startups, adding
to the overall risk of investing in this asset class.
4. SME Fund:
 Business Risk: Small and medium-sized enterprises encounter various risks such as operational,
financial, and competitive risks. Failures in business can have a negative impact on fund returns.

 Liquidity Risk: Investments in small and medium-sized enterprises may face challenges in finding
secondary markets for exiting.


Sector-Specific Risks: Small and medium-sized enterprises operate in different sectors, each carrying
its own set of unique risks.
5. Special Situation Fund:
 Investment Risk: These funds focus on distressed assets, turnarounds, or special situations. Realizing
returns hinges on specific events, such as restructuring or mergers.

 Legal and Regulatory Risks: The complexity of legal issues and regulatory obstacles may affect the
potential for returns.

 Timing Risk: Achieving successful outcomes in special situations hinges on precise timing.

References in the Provided Text:

The document talks about different investment sectors in India and includes references to support the discussion.
Here is a breakdown of the references by section: Social Venture Funds: The document mentions that the Social
Venture Fund has a growth rate of 34% CAGR and focuses on social ventures and social enterprises as of 2023,
although the specific source is not mentioned.

1. Investment in Infrastructure: According to undisclosed source, India's infrastructure is expected to grow at a

compound annual growth rate (CAGR) of 10% between 2019 and 2023. The projected spending is ₹66.7
lakh crore for the period of 2017-2023 and ₹142.9 lakh crore for the period of 2024-2030. Green
infrastructure is predicted to grow five times compared to 2017-2023, with ₹30.3 lakh crore allocated for
renewable energy within green investments.

2. The world of Venture Capital:

 According to moneycontrol.com, there has been a significant increase in venture debt with a compound
annual growth rate of 34% expected from 2017 to 2023. Additionally, there are projected to be between
175-190 deals in 2023.
 On the other hand, thehindubusinessline.com reports a sharp decline of 71.5% in VC funding between
January and August 2023.
 Finally, static.investindia.gov.in highlights India's position as the second-largest destination for VC
funding in the Asia-Pacific region. It also mentions the successful fundraising activities by domestic VC
firms in 2023.

3. Small and Medium Enterprises (SMEs): The number of registered MSMEs in India is steadily increasing,
according to ibef.org. livemint.com provides information on the performance of the Nifty SME EMERGE
Index, which has shown a compound annual growth rate of 39.78% until November 2023, as well as market
capitalization trends. Government initiatives supporting SMEs can be found on msme.gov.in, including
resources from the National Small Industries Corporation (NSIC) and the National Institute for Micro, Small &
Medium Enterprises (NIMSME).

4. Axis Special Situations Fund: Website: Information on the fund's investment strategy, thematic approach, and
top 10 holdings (as of 2023). Website: Insights from the fund manager on market volatility and investment
strategy. Website & moneycontrol.com: Performance details of the fund (CAGR and current value for a ₹10,000
investment).

5. SEBI reports on AIF performance, Industry reports on the Indian AIF market & Websites of individual AIFs.

6. Compound Annual Growth Rate (CAGR) can be a useful tool for understanding investment returns,
particularly when specific return data is not readily available. The relationship between CAGR and returns is
typically positive, as evidenced by the information on investment sectors in India provided below:

CAGR and Returns:

 CAGR (Compound Annual Growth Rate): This metric reflects the average annual growth rate of an
investment over a specified period, taking into account compound reinvestment of all earnings.
 Returns: This term refers to the overall profit or gain produced by an investment over a specified time
frame.

7. Positive Relationship: Compound annual growth rate (CAGR) gives a more stable view of returns over time
by smoothing out year-to-year fluctuations. A high CAGR typically suggests good performance, while a low
CAGR indicates weaker performance. When there is no actual return data available, CAGR serves as a useful
tool for comparing the performance of various investment sectors.

8. Information from the Text: The text provided discusses the Compound Annual Growth Rate (CAGR) for
different sectors in India:

a. Social Venture Funds: A CAGR of 34% shows a strong historical growth trend.

b. Infrastructure Investments: With a CAGR of 10% from 2019 to 2023, there is steady growth in infrastructure
spending.

c. Venture Debt: The CAGR of 34% from 2017 to 2023 indicates a rapidly growing asset class.

d. Nifty SME EMERGE Index: Showing a CAGR of 39.78% until November 2023, there is a significant growth
within the SME segment.

e. Axis Special Situations Fund: The CAGR of 7.79% reflects the performance of the fund, though it may not
necessarily yield a high return.

8. a. Challenges with CAGR: The CAGR calculation is based on steady growth and does not consider
fluctuations in returns. Actual investment performance can vary from the CAGR in a specific year. It does not
provide a complete picture. Factors such as risk tolerance and expenses can also impact investment choices.

b. Final Thoughts: Although CAGR is not a perfect measure of returns, it provides valuable information for
comparing different investment sectors or studying long-term patterns. It is important to be aware of the
limitations of CAGR and use it in conjunction with other investment metrics for a well-rounded assessment.

Suggestions:

1. Data Analysis:

Visualizing the Data: To easily identify patterns and biases, consider creating charts or graphs showing the
relationships between investment categories, allocation percentages, and returns (CAGR). For instance, a scatter
plot with allocation percentage on the X-axis and CAGR on the Y-axis could reveal if investors tend to allocate
more to categories with lower historical returns (anchoring bias).

Comparing Across Timeframes: It is beneficial to analyze the data over a longer period to see if patterns remain
consistent or change over time. This can provide valuable insights into the trends in investment behaviour.
2. When analysing Behavioural Finance:

Think about more Biases: Look into different Behavioural biases, such as framing bias, herding behaviour, and
overconfidence, that could impact investment choices in AIFs.

Measure the Bias: The suggested model gives a specific number to the bias factor. Despite being difficult,
studying how to quantify Behavioural biases in investment decisions can enhance this part of the model.

3. In order to improve the mathematical model, we can consider adding new factors such as transaction costs
and fees related to various AIF Fund categories. We should also look into creating more advanced models
that can factor in how different biases interact with each other. testing and verifying the model is vital. We
need to run simulations with various parameter values and then compare the outcomes with actual data to
determine how well the model performs.

4. Additional Considerations: When analysing AIF performance, it is important to consider SEBI reports and
industry data. Utilizing this information can give you a deeper understanding of the market and provide
valuable insights. Conducting surveys with AIF investors can also be beneficial. By understanding their risk
tolerance, investment goals, and decision-making processes, you can incorporate real-world behaviour into
your analysis. By taking these steps, you can enhance your analysis of AIF data from a Behavioural finance
perspective. This will allow you to continue refining your mathematical model as your knowledge of
investor behaviour and the AIF market grows.

Conclusion:

In conclusion, by examining the data and delving deeper into research, we can uncover valuable information on
how overconfidence may affect AIF investment decisions. This analysis can assist AIF managers in recognizing
their biases, enable investors to make well-informed decisions, and aid regulators in creating policies that
encourage responsible investment practices.

References:

 moneycontrol.com2
 thehindubusinessline.com3
 static.investindia.gov.in4
 web-assets.bcg.com
 Untitled-1 (msme.gov.in)
 livemint.com3

 axismf.com2
 axismf.com3
 axismf.com4
 axismf.com5
 moneycontrol.com
 https://sifisheriessciences.com/journal/index.php/journal/article/download/1082/1089/2093
 emerald.com3
 academia.edu4
 bajajamc.com5
 academia.edu
 SEBI | Data relating to activities of Alternative Investment Funds (AIFs)