A new analysis reveals that individual investors often underperform fund averages due to timing and behavioural biases, highlighting the importance of disciplined investing and long-term strategies.
Two investors can own units in the same mutual fund and still end up with very different results. One may earn 15%, another 10%, while the fund’s published return is 14%. According to Kuvera, that is not an error but a familiar feature of investing: funds usually report time-weighted returns, while investors experience money-weighted returns, which are shaped by when cash goes in and comes out.
The gap is often created by behaviour, not by the portfolio itself. Mint, citing a Value Research study, said the issue was examined across 170 diversified equity funds over 10 years and found that real investor returns often lagged fund returns because people tend to buy after strong runs and sell after sharp falls. Kiplinger has separately explained that fund performance shows the return of the scheme itself over time, whereas an investor’s result depends on the size and timing of each contribution and withdrawal.
That difference can be costly. Kuvera said studies suggest the behaviour gap can shave 2% to 4% a year from returns, with the shortfall often larger in volatile categories such as small-cap and sector funds. It also pointed to a study of 18 flexi-cap funds in which even strong performers spent about 40% of rolling one-year periods behind the benchmark. After taxes, the case for holding rather than switching became stronger, with buy-and-hold coming out ahead in 17 of the 18 funds.
The larger lesson is that top ranks rarely stay fixed for long. Market cycles move, sectors fall in and out of favour and themed bets that work in one phase can look ordinary in the next. Kuvera argued that investors should focus less on recent winners and more on consistency, volatility, downside risk and the reasons a fund has outperformed. Paytm Money has made a similar case, urging investors to keep systematic investment plans running through weak markets, review portfolios annually rather than daily and hold investments for at least 5 years to reduce emotional decision-making.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
