Which bias, discussed in the NISM workbook's chapter on Behavioural Finance in Practice, leads investors to under-invest overseas out of familiarity with local markets and companies, and what antidote does the book suggest?

[ A ]Home Country Bias; the antidote is for the Adviser to get educated on, and in turn educate clients about, the benefits and opportunities of global investing, such as through the Liberalised Remittance Scheme[ CORRECT ]

[ B ]Too Much Diversification

[ C ]Buying Insurance for Tax Saving

[ D ]Action Bias

Takeaway

Option A is correct: this is Home Country Bias.

Derivation

The NISM workbook describes Home Country Bias as investors preferring 'securities available in their home countries due to familiarity with the markets, the companies involved as well as the regulatory environment,' which denies them diversification benefits. It states the antidote 'is for the advisor to get educated on the benefits and opportunities in global investing and, in turn, educate their clients about the same,' citing India's Liberalised Remittance Scheme as a facilitator. This is a distinct behaviour from Too Much Diversification or Action Bias covered in the same chapter.

Why the others fail

B — Too Much Diversification

This is about holding an excessive number of securities across funds, which the book cures by pointing to a broad index fund, not by investing abroad.

C — Buying Insurance for Tax Saving

This is about purchasing insurance mainly to save tax, cured by highlighting the need for adequate pure insurance, which is unrelated to the geography of investments.

D — Action Bias

This is the urge to transact too often, cured by priming the client on patience and long-term investing, which is unrelated to domestic versus foreign securities.