Why Are Your Returns Lower Than Your Mutual Funds? Common Investor Mistakes!

Have you ever looked at a mutual fund presentation and seen returns like 15%, 18% or 20% compounded, and then looked at your own portfolio and wondered: if the same product has delivered such a good return, why doesn’t my portfolio look the same?

Have you ever felt this? Then you are not alone. Hi, I’m Sachin Kabra. I have spent more than a decade in wealth management, and I have seen this pattern again and again.

A product can be very good, but the investor’s return from the same product can be completely different. Let’s take an example.

A product may deliver an 18% return, but your return depends on several things: how much did you invest, when did you invest, and did you stop your SIP when markets were crashing?

Did you add more? Did you chase the best-performing fund somebody told you about and keep moving from one fund to another? Does the fund you bought actually solve any life goal that you have?

These are all outcomes. There is a difference between returns and outcomes. In this video, I want to talk about this small nuance: returns belong to a product, but outcomes belong to an investor’s journey.

If you understand this small nuance, the way you invest and the way you look at investing can become completely different.

Let me show you a simple example. Imagine somebody invested ₹1 lakh in the Sensex in 1998 and remained invested for the next 25 years. Investor A did nothing. He simply stayed put.

No panic selling, no moving out, no looking at the market every day. He just stayed invested. That ₹1 lakh became approximately ₹22 lakh after 25 years. Now consider Investor B.

He also invested the same ₹1 lakh in 1998, in the same market, for the same 25-year period. But he missed the 10 best days of the market. His outcome was only around ₹8 lakh.

This is not a small difference. ₹22 lakh versus ₹8 lakh. Almost 60%–65% of the value disappeared simply because he was not invested during those best days.

Now imagine somebody missed the 40 best days of the market during those 25 years. The outcome would be just around ₹2.5 lakh from the ₹1 lakh invested 25 years earlier. What is happening here?

Same market, same index, same period, but completely different outcomes. Why? Because investing is not just about selecting the right asset class.

It is also about living through the entire journey and remaining invested through that journey. And the irony is that the people who miss these best days are often not careless investors.

They are smart people trying to be even smarter with their investments. Doing nothing is not necessarily dumb or careless. Sometimes it simply means being disciplined.

Let me make this very real. Two friends are both 35 years old. Both earn well, and both start an SIP of ₹20,000 in the same fund. After some time, there is a market correction.

Investor A panics. He starts looking at the market every day and sees his portfolio in the red. He pauses his SIP, thinking, “Let the market settle. I’ll restart the SIP once things look better.”

By the time he becomes comfortable again, the market has already recovered significantly. Investor B is equally scared and equally disturbed by what is happening. But he does one thing differently.

He does not stop his SIP. His SIP continues buying more units when the market is down, and when the market eventually recovers, he benefits more than Investor A.

Same fund, same market, same SIP, but a different outcome. Why? Because Investor A invests emotionally, while Investor B behaves with greater discipline. People try to predict market falls. They wait for clarity.

They want to invest when everything feels comfortable and stable. But in investing, some of the best days of the market are usually hidden very close to the worst days.

So if you are trying very hard to avoid the big market correction, you also risk missing the strongest recovery days. That is why this chart is extremely powerful.

This is not really a market chart. It is a human-behaviour chart. Markets can give you very good long-term returns, provided you remain invested and are not absent at exactly the wrong time.

Now you may say, “Okay Sachin, understood. Don’t time the market.” Fair. But the deeper point goes much beyond just market timing.

Investors are often able to find good funds, but they still fail to capture the fund’s full performance. That brings me to a second example, which is another useful way to look at investor behaviour.

Consider the performance of a large-cap equity fund over a very long period, from around 2002 to 2020. On paper, the fund multiplied wealth roughly 22 times. That translates to a CAGR of approximately 18%.

That sounds huge. Anybody looking at the NAV chart of that fund would say, “Wow, this is brilliant. Investors in this fund must have created serious wealth.” But did they?

When you look at the average investor experience in the same fund, the outcome was only around five times the original investment, which translates to a CAGR of approximately 9%.

So on paper the fund delivered 22x, while the average investor experience was closer to 5x. Why does this happen?

Because while the NAV chart of the fund is steadily moving upwards over a long period, the investor is living through fear, greed, market meltdowns, WhatsApp forwards, YouTube opinions and friends constantly telling them what they should do.

Even a great long-term fund would have gone through periods of underperformance. Sometimes years of underperformance. At times it would have looked weaker than its benchmark.

What does the investor often do during such a period? He stops the SIP. He exits the fund. He moves to a new, shiny fund that has performed very well recently.

Maybe it is another fund that has done well over the last one or two years. Maybe it is a sectoral fund that suddenly looks extremely attractive.

Over time, the original fund gradually recovers and compounds. But the investor is no longer there. I love this idea: a fund compounds mathematically, but investors experience compounding emotionally.

Now put these two examples together. The first example says that if you miss some of the best days of the market, your returns can collapse.

The second says that even if a product delivers very good long-term returns, many investors are unable to capture the full potential of those returns. The lesson is very clear.

Money is not only lost by investing in bad products. A lot of money is also lost by investing badly in good products.

Investors spend an enormous amount of time trying to identify the best fund to invest in. Which category should I invest in? Large-cap? Mid-cap? Flexi-cap? This sector is doing well. Should I invest in that?

Should I invest in a PMS? An AIF? Don’t get me wrong. These are not bad questions. They are important questions.

But there is a bigger question that should come before all of these: will I behave in a manner that helps me capture the potential these products can offer?

Because the product by itself is not enough. Our behaviour while owning that product is equally important.

In my experience, investors damage their outcomes through three broad behavioural mistakes. The first is chasing rear-view returns. We look at the fund that performed extremely well last year.

We hear about a theme or sector that has done extremely well. Suddenly it becomes popular and everybody starts talking about it. By the time we decide to invest, it may already be late.

A lot of the easy money may already have been made. The second mistake is panicking during relatively short periods of pain.

When you look at a 20-year chart of a successful fund, a one-year decline or period of underperformance looks like a tiny blip.

But when you actually live through that one year, it is very difficult. Everywhere you look, there is bad news. Markets are falling. Your portfolio is in the red. You feel like stopping your SIP.

You feel like switching. You feel like moving into something else. And in doing so, you may damage the portfolio. A notional loss can turn into a permanent loss because of the action you take.

The third mistake is confusing activity with intelligence. This has become extremely common today. There is so much information available, and we have apps at our fingertips. We want to feel in control.

So we feel the need to take some action. Stop the SIP. Switch the fund. Buy something else. Move from here to there. But activity does not automatically mean better investing.

In fact, unnecessary activity can destroy a lot of wealth. The real power of compounding is not captured simply by being invested in equity. It is captured by living through periods of uncertainty.

That is the difference between merely investing in equity and actually capturing the long-term power of equity.

So what is important? Good returns matter. Good fund selection matters. Asset allocation matters. But those are only the starting points. The deeper questions are: will I remain invested when markets are down?

Did I invest with conviction, or did I simply look at past returns and invest? Will I stop my SIP when volatility arrives?

And most importantly, does the product I invest in match my risk profile, my behaviour and my goals? Because the right portfolio is not merely the portfolio you can buy.

The right portfolio is the portfolio you can actually hold.

In investing, returns belong to the product, but outcomes belong to the investor’s journey. And if you want to remember just one thing from this entire video, let it be this:

You do not build wealth merely by finding good investments. You also build wealth by behaving well around those good investments.

Most investors do not necessarily lose money because they put money into a bad fund. Very often, they damage their wealth by repeatedly breaking their investment journey. Thank you so much for watching.

If this video helped you think differently about your investments, do share it with friends who keep chasing the next best fund. I’ll see you in the next video.