AI in Finance: Strengthening Investor Protections in the Indian Market

Resumen

In 2025, India's financial landscape will witness growth in Artificial Intelligence (AI)-driven tools that simplify investment decisions for robo-advisors, algorithmic trading, and predictive analytics. Despite these technological advancements in AI-driven financial tools, the participation of retail investors in the financial markets remains low. This paper explores the impact of AI-driven financial tools on investor protection in India by analyzing the evolution of the technology that outpaced the regulatory safeguards. The rising issues like lack of financial literacy, risk in data privacy, lack of transparency in AI decision making, and the insufficient mechanisms that have undermined the investor's level of confidence. A novel dimension has been explored in this study by the psychological impact of the emotionally stylized AI interfaces, such as the Ghibli style's inverse imagery and the visual designs of user-centric interfaces that influence investor behavior and their decision making. By comparing the various global best practices from the US and the UK with India's current regulatory stance, this paper aims for an AI-specific investor protection framework under the SEBI and the related institutions for the development. It also concludes with a policy recommendation aimed at developing the investor’s trust, ensuring the ethical AI deployment, and promoting inclusive participation in the evolving digital financial ecosystem in India.