Investor behavior toward capital market investment represents a multidimensional phenomenon shaped by psychology, financial literacy, socioeconomic background, and risk perception. This critical review analyzes the patterns of investment behavior among urban and rural investors in India by synthesizing the existing empirical literature, doctoral theses, and research publications. This review highlights the key behavioral differences between urban investors and characterized by higher market awareness and technology-driven investment decisions—and rural investors, who demonstrate conservative tendencies, limited literacy, and dependency on informal financial advice. The study uses research from Shodhganga and online databases like ResearchGate, Google Scholar, and Scopus, focusing on works published from 2005 to 2024. The critical synthesis shows that urban investors are increasingly entering capital markets through mutual funds, systematic investment plans, and equity shares. In contrast, rural investors prefer tangible assets such as gold, real estate, and savings deposits. Both groups display behavioral biases, including herding, anchoring, and overconfidence, but these biases differ based on exposure and accessibility. The review highlights significant research gaps, such as a lack of comparative studies, limited measurement of behavior, and the underrepresentation of semi-urban investors. The study concludes that addressing the financial literacy gap and improving investor education programs across rural India are vital for balanced participation in capital markets. This study adds to behavioral finance by bringing together scattered empirical evidence and providing a framework for understanding how geographical, psychological, and socio-economic factors influence investors’ saving and investing decisions.