Financial literacy has become a critical determinant of retail investor behaviour in modern financial markets. With the rapid expansion of financial products and increasing participation in capital markets, investors require adequate financial knowledge to make informed decisions. In emerging economies such as India, mutual funds have gained prominence as an accessible investment avenue due to their diversification benefits, professional management, and regulatory oversight by the Securities and Exchange Board of India (SEBI). Despite this growth, limited financial awareness among many investors continues to influence investment preferences, fund selection, and long-term investment orientation. This study investigates the relationship between financial literacy and mutual fund investment trends among retail investors. Using secondary data from the Association of Mutual Funds in India (AMFI), financial literacy surveys, and capital market databases, the study applies correlation and regression analysis to examine the impact of financial knowledge on investment participation, SIP adoption, and overall industry growth. The results indicate a strong positive relationship between financial literacy and mutual fund investments, with higher literacy levels significantly enhancing investor participation and systematic investment behaviour. The study contributes to the literature by demonstrating the importance of financial awareness in shaping investment decisions and provides policy insights for strengthening investor education programs and promoting sustainable capital market participation.