Nearly 50% of equity investors redeem their MF investments within 2 years

A whopping 48.7 per cent of equity investors redeem their mutual fund portfolios within two years or less despite being aware of the importance of long-term investing and the power of compounding, revealed a survey by Axis Mutual Fund. 

The survey was conducted by interviewing 1700 Axis MF investors from across the country with an aim to receive insights on investors’ attitudes and understanding of risks in mutual fund investing.

The AMFI data (as of June 30, 2023) revealed that 15.6% of equity assets do not stay invested even for more than 6 months; 10.9% of equity assets stay invested for 6-12 months and 22.2% of equity assets stay invested for 12-24 months. 

Even though 89 per cent of investors believe that understanding ‘risk appetite’ plays a role in choosing the right mutual fund, only 27% of investors said that they actually took their risk appetite into consideration before investing. In fact, the survey reveals that 53 per cent of investors are not very confident of personal risk assessment while choosing a mutual fund.

 The majority 59 per cent of investors still consider past performance as one of the key benchmarks for investing in mutual funds.

 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 and of the total survey respondents, only 30% of respondents were aware of Risk Profiler. "This indicates that investors know the importance of risk profiling but might not be aware of ‘Risk Profiler’ as a tool for assessing personal risk, leading to a potential mismatch between personal risk and that of the fund," revealed the survey.  This might lead to a mismatch in personal risk with that of the fund risk. For example, a particular fund chosen for the short term might carry high risk and might not be the ideal one for the said risk profile.

At least 53 per cent of investors said they were not very confident when it came to assessing their risk capacity while choosing a mutual fund.

 As high as 61% of the respondents were not aware of what risk-o-meter indicates. Only 16% of the total respondents who were aware of a ‘Riskometer’ and that it indicated ‘Fund’ risk, claimed to check the ‘Riskometer’ before making an investment. On a slightly brighter side, 66% of investors mentioned that they would like to understand more about the risk-o-meter and its importance in making informed decision.

The survey mapped investor returns with fund returns to evaluate the impact of churning on both over several years - for equity, hybrid and debt funds. The findings of the study indicated that investor returns were significantly lower than both, point-to-point fund returns as well as systematic investment returns for all three categories. 

"Clearly, excessive, and frequent churning had dented investor returns. Further, stopping longterm SIPs in response to shortterm market corrections defeated the very purpose of SIP, causing lasting harm to the portfolio as investors did not benefit from compounding," said Ashish Gupta, CIO, Axis AMC.