The majority of the investors buy when the market has already run up and is valued expensively. This often leads to disappointment when the market either goes down or sideways for years. If you avoid doing what others do and invest regularly in top fund schemes, you can easily make money from your mutual fund investments
Indian equity mutual funds have delivered excellent returns over the past 10 years or so. Their returns on a point-to-point basis may not have been great but investing in top funds through Systematic Investment Plans (SIPs) would have delivered good returns. And yet, over the last six months more than Rs10,000 crore has flowed out of equity mutual funds. Many are selling because they have made losses or meagre profits? It has been the same story in previous market cycles. Why do investors lose money in mutual funds? The main reason is that they put money into equity mutual fund schemes at the wrong time. In an interview with CNBC-TV18 on Friday, Prashant Jain, chief investment officer of HDFC Mutual Fund, said that “almost 80%-85% of the equity mutual fund inflows came in when the market was highly valuated at a price-to-earning (P/E) ratio of 17-18. This is one of the reasons investors tend to get disappointed when the market declines subsequently and it becomes frustrating for investors to hold on to their investments. So, when the market finally rises, after they have broken even or made some money, they pull out their investments. Therefore, we never see inflows at low P/Es and when the market begins to recover.”
Read about the outflows from mutual funds in November 2012 here.
Getting their timing wrong or going in and out of their investments is not limited to Indian investors. It is the same story in the US. One of the most widely cited studies on investor behaviour is a study by DALBAR, a research agency. DALBAR’s Quantitative Analysis of Investor Behaviour compares the investors’ returns against market returns. The most recent DALBAR study found that in the 20 calendar years ending in December 2011, the Standard & Poor's 500 Index had a 7.8% compound rate of return. In the same period, the average investor in US equity mutual funds earned just 3.5%. Even in the five-year period ending December 2011, mutual fund investors went in and out at the wrong times, resulting in inflows when the market declined and outflows when the market rose.
When it comes to systematic investing, the study showed that for the 20-year period the average equity investor earning $9,853 against a systematic investor’s earnings of $8,665, for a total investment of $10,000. This just the second time in history, since 1994 when the DALBAR study was first published, when the average equity investor outperformed the systematic equity investor. The average systematic fixed income investor overwhelmingly outperformed the average fixed income investor over the twenty-year period by earning over four times as much.
Buying when the market is rising and selling when it is down is true of every investor in every country and every period. Here is some information Thomas Gibson’s classic investment book titled “The Facts about Speculation”, published in 1923. Gibson found analysed around 4,000 accounts (a high number in those days) and states, “The most glaringly apparent cause of loss revealed by the investigation of these accounts was the almost universal habit of making purchases at high prices after a material rise had already occurred. This error is of a wholly psychological character” (emphasis ours). Fast forward almost 100 years later, it is exactly the same.
Gibson found out that majority of the investors bought right at the top of the cycle, with the average price of all purchases being within about 4 points of the extreme high. The price and value disconnect is so great that few investors pay attention to fundamentals and recognizing value and were solely focussed on price action. He found that 90% of the investors who relied on charts and other mechanical systems suffered losses. Investors usually bought on slight declines from high prices and sell on slight advances from low prices. This is a classic losing strategy.
Another folly, according to Gibson, is impatience. It is pertinent to note that humans are a fickle lot and overreact when markets crash (especially when it has been purchased right on the top). When the market is rising, everyone rushes in—investors, mutual funds, advisors and so on. Advisors erroneously tell investors to buy. Investors get carried away instead of thinking hard before putting bucket-loads of money into an investment.
The way to address this is to invest regularly, which is technically called SIP. While SIPs can sometimes lead to negative returns over a long period of time, over longer periods the number of periods of negative returns reduces (Read: SIP Smartly) Systematic investing also helps to navigate volatile markets and negate negative returns. Take a look at the returns over the past five years ended November 2012. Had you invested Rs20,000 in an index fund based on the Sensex in November 2007, your investment would be worth just Rs19,976 at the end of November 2012. The Sensex has moved nowhere from the start of November 2007 to November 2012. A quarterly systematic investment of Rs1,000 over this period would be worth Rs24,838, up 24.19%. Therefore one should not undermine the benefits of systematic investing and should continue even through the volatile market movements. However, according to the recent Computer Age Management Services (CAMS) data we have seen many investors exiting their SIP accounts before completion of the tenure. Net SIP registrations have been negative each month from April 2012 to September 2012.
The ground-level infrastructure for Aadhaar-linked direct cash transfer is not yet ready. The base for this scheme, the UID project is surrounded with controversies. And yet the UPA government is pushing hard both the UID and the direct cash transfer scheme with an aim to lure voters for next general elections
Vidya underwent three changes in costume during the wedding ceremony, one of them being a mustard saree with a pink blouse, matching Siddharth's yellow kurta and pink turban
Mumbai: Bollywood actress Vidya Balan tied the knot with UTV head Siddharth Roy Kapoor on Friday in a private ceremony which saw a mix of both Punjabi and Tamil traditions, reports PTI.
The wedding rituals went on for over an hour this morning at the well-decorated Green Mile Bungalow in Bandra in the presence of family members of the bride and groom.
"The wedding ceremony was a mix of both Punjabi and Tamil traditions. The food served was South Indian," a source close to Vidya told PTI.
The 34-year-old actress underwent three changes in costume during the wedding ceremony, one of them being a mustard saree with a pink blouse, matching the 38-year-old groom's yellow kurta and pink turban.
After the ceremony was over, the newlywed couple came out to pose for pictures and Vidya was seen wearing a red saree teamed with gold jewellery.
The 'Kahaani' star also waved her mehndi-adorned hands at the waiting media, revealing the Punjabi-style 'chooda' she was wearing.
The wedding festivities for the couple began on 11th December with a private dinner which was followed by a mehendi ceremony on 12th December.
A few friends from Bollywood sent in their best wishes for the newlyweds on Twitter.
"Congratulations to my friends Siddharth Roy Kapoor and Vidya Balan! They make such a beautiful couple.. here's wishing them happiness forever," tweeted actress Priyanka Chopra.
Filmmaker Madhur Bhandarkar posted, "My heart filled wishes to buddy Siddharth Roy Kapoor and Vidya Balan for the new phase of their lives together. Congratulations to the beautiful couple."
Vidya, who never confirmed rumours about her relationship with Siddharth, stayed mum about her wedding as well and the celebrations are being kept as private as possible.
The 'Kahaani' actress, who was born in Kerala and grew up in Mumbai, made her Bollywood debut with the 2005 film 'Parineeta'.
She has made a mark in the hindi film industry with films like 'Bhool Bhulaiyaa', 'Paa', 'Ishqiya' and 'The Dirty Picture'.