'Frequent portfolio churn damaging investor returns in mutual funds'

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Mutual fund investors earn much lesser returns that the funds they invest in, shows a recent research done by Axis Mutual Fund. The research has taken into account the inflows and investor behaviour in equity and hybrid funds for the period of last 18 years and in debt funds for 12 years. The research points out that panic and FOMO both impact investor returns considerably over a long investment horizon both in lumpsum and SIP.

The report by Axis Mutual Fund analyzes investor behavior in equity and hybrid funds from 2003 – 2020 and in debt funds from 2009 – 2020. Apart from calculating point to point investor and fund returns, the report also looked at returns through systematic regular investments such as SIPs. It is notable that SIPs remove the issues of market timing from the investor through regular equal value allocations over time.

“The findings of the study are quite comprehensive and give us a sense of the damage being suffered by investors. Across categories and time periods, investor returns are significantly worse than both point to point fund returns as well as SIP returns,” says the report published by Axis Mutual Fund.

Comparison of Fund returns, SIP returns and investor returns:

ET Online

Net new SIPs (in lacs) v/s Nifty:

ET Online

What should investors do?
After assessing the damage that frequent churn is causing to investors, the logical question is what steps should investors take to protect themselves? The report answers this question with some simple points:

  • Start early and invest regularly to get the full benefit of compounding
  • Have a clearly defined asset allocation plan and monitor it regularly
  • Do not get swayed by market noise in the short term – especially when the market is going through a correction. These things are part and parcel of the equity markets.
  • Invest in funds/ strategies that can deliver over the long term rather than following risky short term market fads.

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