Now Reading: DSP report warns strong mutual fund returns may not mean investor gains
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DSP report warns strong mutual fund returns may not mean investor gains
DSP report warns strong mutual fund returns may not mean investor gains
A DSP Mutual Fund report shows that even a top-performing mutual fund can leave investors with much lower gains or losses if they enter and exit at the wrong time. The report…
A DSP Mutual Fund report shows that even a top-performing mutual fund can leave investors with much lower gains or losses if they enter and exit at the wrong time. The report uses the example of the Kinetics Internet Fund in the US, which delivered a 10.4% annualised return from December 1998 to July 2026, but investors earned only 0.4%. The gap arose because investors poured money in after spectacular gains and pulled out during downturns, missing the recovery.
The report also points to Indian small-cap funds, where between March 2013 and June 2020, the category generated a 14.8% CAGR while investors faced a -1.6% CAGR. More money flowed in during the bust (Rs 27,000 crore from January 2018 to June 2020) than during the boom (Rs 17,000 crore from March 2013 to December 2017). The report stresses that fund returns are time-weighted, but investor experience is money-weighted, so discipline and a long horizon matter more than chasing past performance.
Indian Opinion Analysis
The gap between fund returns and investor returns, known in finance as the behaviour gap, is most pronounced in volatile categories like small-caps, where greed and fear amplify bad timing. Under SEBI's 2018 reclassification rules, small-cap funds must invest at least 65% in stocks ranked 251st and below by market capitalisation, making them inherently riskier. The Rs 27,000 crore inflow into small-cap funds during the 2018, 2020 downturn suggests many retail investors bought at peak valuations and sold near the bottom, repeating a pattern seen globally. The Association of Mutual Funds in India has long pushed for better investor education, but the report underscores that financial literacy alone may not overcome emotional decision-making. The next stress test for investor behaviour will come when the current bull market in small-cap stocks inevitably corrects.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
