Retail Investor Returns Lowest in Equity Markets in 2003-22: Report

Even as markets have proliferated over the past two decades, as have mutual funds, retail investors have done the least relative to fund companies across all asset classes as they shuffled their portfolios too quickly when the markets got choppy, according to a report.

According to an analysis of investor returns over the past two decades — from 2003 to 2022 — by Axis Mutual Fund, retail investor returns were the lowest and fund house returns the highest, whether in equity funds or hybrid funds (2003-22) and debt funds (2009-22).

And Axis AMC analysts attribute this primarily to the frequent turnover that investors’ portfolios face when the market turns choppy.

Between 2003 and 2022, when fund companies gained up to 19.1% of investments in equity funds, investors, mainly individuals, recorded the smallest gain at 13.8%, while Systematic investment returns were higher at 15.2%, analysts said.

Similarly, hybrid fund investor returns were lowest at 7.4%, systematic investment returns were highest at 10.1%, and fund companies peaked again at 12.5%.

As for debt funds, which typically have the lowest returns, investors gained only around 6.6%, while the other two gained 7% each during this period.

One of the main reasons why investor returns are lower than fund returns is that there was a much higher level of churn on the investor side, the report says and suggests that the basic solution to this problem is to stay invested throughout the market cycle. rather than following a trend over a period of time.

These results are based on analysis of the behavior of investors in the frequent churning of their equity and hybrid funds over their long-term returns over the past 20 years — 2003-22, and debt funds over the Last 14 years – 2009-22.

In addition to calculating point-to-point returns for investors and funds, they also looked at returns generated by systematic investments, such as systematic investment plans.

The analysis indicates that investor returns were significantly lower than point-to-point fund returns and systematic investment returns for all three categories – equity, hybrid and debt funds.

The study also has similar results for five-year and 10-year periods, which clearly shows that investor returns are excessive and frequent.

Furthermore, stopping long-term SIPs in response to short-term market corrections defeats the very purpose of SIPs, causing lasting harm to the portfolio as investors do not benefit from compounding, according to the report, adding that SIPs help alleviate the market timing problem. through regular and equalized allocations over time and are well suited for investors with regular cash flow, as they can automatically invest monthly/quarterly with ease.

Analysts advised investors to avoid overreacting to market sentiment, stop being greedy and focus too much on short-term returns. In addition, investors should stop making instinctive investment decisions and impulse investments, but invest systematically to get the most out of the capitalization and the average cost in rupees.

Start early and invest regularly, which will allow an investor to take full advantage of capitalization, they added.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Robert D. Coleman