International Journal For Multidisciplinary Research

E-ISSN: 2582-2160   •   Impact Factor: 9.24

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"Risk Mitigation Strategies and Financial Distancing: A Study of Retail Investor Behaviour during Economic Uncertainty"

Author(s) Ms. Kitty Sandeep Rana, Prof. Dr. Pratima Rawal
Country India
Abstract Abstract: The volatility in rate of return can be defined as risk. Risk is also associated with the non- payment by a counterparty which can also be known as financial risk or credit risk. Financial risk generally connects to losing of principal amount. It comes in different shapes and sizes for different industries and markets. This type of risk takes a business to the verge of bankruptcy when cash flows are inadequate to meet its obligations. Economic uncertainty and financial market volatility, such as those witnessed during the COVID-19 pandemic, have significantly influenced investor behaviour—especially among retail investors. As social distancing was an efficient tool for preventing ourselves from the COVID 19 onslaught during the pandemic time, the similar way financial distancing has emerged as a strategic approach to protect personal wealth and reduce exposure to financial risks. Financial distancing is giving space in your financial planning i.e., systematically planning and implementing the specific measures to reduce the risk of non-payment of funds in any transactions for all the counterparties. It means keeping a gap between your outflow (premium to be paid) and inflow (Maturity receipts) of funds while investing. It also means the strategic isolation or withdrawal of personal financial assets from high-risk investments, markets, or instruments to safeguard wealth during periods of economic or market distress.
Financial Instruments having the same payment or investment due date or month and same maturity periods are not advisable for the wealth creation. To grow and maintain your lifestyle you must secure your funds and work on it, financial distancing deals with this need of the hour. Financial distancing teaches you how to build a base for the financial success in your life and get a competitive edge over the others. The biggest question in the minds of a common man is how to create cash flows for our families? How to rebalance the portfolios? The answer to these questions is financial distancing which helps us to provide the tools to make money out of money and generate cash flow not for the present but also for the future.
Retail investors are increasingly adopting risk mitigation strategies such as asset diversification, liquidity management, staggered maturity planning, and portfolio rebalancing to safeguard their financial stability. This research paper examines the behavioural shifts in retail investors during periods of economic stress, explores how financial distancing principles are applied in personal financial planning, and evaluates their effectiveness in managing financial defaults and credit risk. The paper also analyses the role of regulatory and banking institutions in encouraging resilient investment behaviour and highlights the need for real-time risk assessment frameworks to support retail investors in uncertain times.
Keywords Financial Distancing, Risk Mitigation, Retail Investors, Investor Behaviour, Economic uncertainty
Field Business Administration
Published In Volume 7, Issue 3, May-June 2025
Published On 2025-05-23
DOI https://doi.org/10.36948/ijfmr.2025.v07i03.45748
Short DOI https://doi.org/g9mnz7
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