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nism-series-xa-home-country-bias-familiarity-global-diversification[ INVESTMENT ADVISER (LEVEL 1) ]

An Indian investor refuses to allocate any portion of his portfolio to global equity funds (such as US S&P 500 or global tech funds) despite having full access via the Liberalised Remittance Scheme (LRS) and Indian mutual fund feeder funds, believing domestic stocks are inherently safer simply because he is familiar with them. What behavioral bias is demonstrated?

[ A ]Home Country Bias / Familiarity Bias[ CORRECT ]

[ B ]Mental Accounting Bias

[ C ]Anchoring Bias

[ D ]Loss Aversion Bias

Takeaway

This investor is demonstrating Home Country Bias (Familiarity Bias) — overweighting domestic securities and avoiding foreign assets purely out of comfort and familiarity, despite having full access to global diversification through LRS and feeder funds.

Derivation

Home Country Bias is a well-documented behavioral pattern where investors systematically hold far more of their home market's equities than a globally-diversified, market-cap-weighted portfolio would suggest is optimal, driven not by rational risk-return analysis but by comfort with familiar company names, currencies, and news flow. This costs the investor real diversification benefits — foreign markets often don't move in lockstep with domestic markets, so excluding them entirely means forgoing risk-reduction that geographic and currency diversification would otherwise provide, even when access (via LRS remittances or India-domiciled international feeder funds) is readily available.

Why the others fail

B — Mental Accounting Bias

Mental Accounting Bias refers to treating money differently based on its subjective psychological source or purpose (e.g., bonus vs.

C — Anchoring Bias

Anchoring Bias refers to fixating on a specific reference number (like a past purchase price), a different cognitive error from a blanket geographic preference for domestic markets over global ones.

D — Loss Aversion Bias

Loss Aversion Bias refers to feeling losses more intensely than equivalent gains, an emotional asymmetry distinct from the comfort-driven.