A Karvy report shows that 8 out of 10 investors who have invested in equity funds through direct plans redeemed their investments within a year.
The report has found that over 80% of investors who have invested in equity mutual funds through direct plans redeemed their investments within a year. In fact, over 60% of such investors redeem their investments within 3 months in volatile markets.
This research was carried out in both market conditions – non-volatile phase during April 2015 - March 2016 and volatile phase i.e. between April 2016 and November 2016.
The report further shows that a majority of direct investors move out of equity funds whenever market turned volatile. “It is clearly evident that direct investors get worried due to lack of guidance and take a decision to leave the fund as soon as the markets turn choppy. Mutual fund is not a product meant for short term investments,” says the report.
On the other hand, investors who have invested in regular plans of equity funds stay put for long term. IFAs have the highest value of investors who have redeemed only after a five year holding period. In fact, nearly 40% of their investors had a holding period of more than two years, finds the report.
Foundation of Independent Financial Advisers (FIFA) has recently shared these findings with SEBI citing how fee based advisory model could affect the mutual fund industry. “IFA actually provides invaluable guidance and hand holds the investor over the period of investment and protects interest. If the proposed (RIA) regulations are introduced resulting in the unintended harm to the investors in the nature of advice gap etc., it would result in mis-buying by unserviced investors. This will cause great harm to the cause of investor protection,” states FIFA’s letter sent to SEBI.
