Recently, an investor from the audience asked the below question after the session on Equity investing at a well-reputed government organisation.
What to do when the equity mutual fund lost investors’ money?
I had to first get it reconfirmed whether it was a mutual fund or something else. Because equity-diversified mutual funds never lost money if you held it for a long period say 10 years plus.
However, it is observed that investors often don’t earn the returns which mutual fund generates it.
The average equity fund investor earns below the fund returns.
And the main reason is investors’ behaviour which is illogical and often based on emotion. That does not lead to wise long-term investing decisions.
These are typical money-losing moves that average investors make.
- Trying to time the market – Buying or selling at the wrong time which can lead to lower returns.
- Overreacting during times of uncertainty or to the market news.
- Focusing too much on the short-term market or fund performance.
- Believing they can predict the future – like during Covid when a lot of investors exited the equity market assuming it would fall further but the market rebounded sharply leaving these investors on the sideline.
Research by Dalbar, Inc (USA) a company that studies investor behaviour and analyzes investor market returns, consistently shows that the average investor earns below-average returns.
Similarly, Axis mutual fund has also done a similar study wherein one can clearly see the difference between investor returns and fund returns.
How to avoid it
- Invest in equity for the long term – minimum of 7 yrs.
- Stay focused on your long-term goals.
- Avoid short-term noise and do nothing.
- Don’t react to market sentiments or market news irrationally.
Happy Investing!!!
Article by:
Meghashyam Sinkar — Co-founder of Pentagraph .
Pentagraph - Your Investment Partners 