About 48.7% of equity investors tend to redeem their mutual fund portfolios within two years or less, though most investors are well aware of the importance of long-term investing and the power of compounding. These were the findings of a recent survey.
At least 15.6% of equity assets do not stay invested even for more than six months, while 10.9% of equity assets stay invested for 6-12 months, and 22.2% of equity assets stay invested for 12-24 months, as per the Association of Mutual Funds in India (AMFI) data as of June 30, 2023.
While 89% of investors are aware that understanding risk appetite is crucial in choosing the right mutual fund, only about 27% of investors said that they considered their risk appetite before investing.
Furthermore, the survey reveals that 53% of investors are not quite confident when it comes to personal risk assessment during the process of choosing a mutual fund.
At the same time, about 59% of investors still regard past performance as one of the crucial benchmarks when it comes to investing in mutual funds.
Out of the 27% of respondents who claimed to take risk appetite into account, 64% were not aware of risk profiler as a tool to evaluate risk appetite. However, of the total number of survey respondents, at least 30% of respondents were aware of the risk profiler.
The survey highlighted that investors are aware of the importance of risk profiling but might not be well-versed with risk profiler as a tool for assessing personal risk, which could lead to a potential mismatch between personal risk and that of the mutual fund.
This could lead to a mismatch in personal risk with the fund risk. For instance, a particular mutual fund chosen for the short-term duration may perhaps carry high risk and might not be suitable for the stated risk profile.
About 53% of investors stated that they were not quite confident when assessing their risk capacity while choosing a mutual fund.
At least 61% of the respondents were not well-versed in what risk-o-meter highlights. A mere 16% of the total respondents were aware of a risk-o-meter and that it indicated fund risk, claiming to check the risk-o-meter before making an investment.
Similarly, about 66% of investors stated that they would like to understand more about the risk-o-meter and its importance when it comes to making informed decisions.
The survey, through mapping of investor returns with fund returns, tried to evaluate the impact of churning on both over a number of years for equity, hybrid, and debt funds.
The survey’s findings underlined that investor returns were significantly lower than both point-to-point fund returns and systematic investment returns for all three categories, i.e. equity, hybrid, and debt funds.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.