A data-driven analysis of 17 Indian mutual fund schemes across large-cap, mid-cap, small-cap, multi-cap, flexi-cap, and hybrid categories demonstrates that staying invested over the long term outperforms frequent switching driven by short-term sentiment.
The study, covering 3-, 5-, 10-, and 15-year horizons, found that despite wide fluctuations in short-term returns, the 15-year annualised returns of most funds converged around 15%, forming a tight bell-curve. Approximately 68% of funds delivered 14–16.6% annualised returns, 95% fell between 12.8–17.6%, and 99.7% remained within 11.5–18.9%.
“This shows that even if investors did not pick the top-performing fund, their patience would have yielded nearly equivalent returns,” said Sahar, highlighting the role of diversification, mean reversion, and compounding in long-term investing.
The pattern held across all categories, with 15-year CAGR approximating 12–14% for large-caps, 14–16% for mid-caps, 15–18% for small-caps, 13–15% for multi-/flexi-caps, and 10–12% for hybrid schemes.
Behavioural finance studies, such as Morningstar India’s “Mind the Gap,” reveal that investors who frequently switch funds underperform by 1.5–2% annually due to emotional decisions like buying after good performance or selling during declines. In contrast, long-term investors capture full fund returns and experience less stress.
Sahar emphasised that staying invested benefits from several factors: built-in portfolio optimisation by fund managers, cost and tax avoidance from frequent switching, mean reversion of sectors and styles, and the compounding effect over time.
“John Bogle’s principle applies: buy the haystack and hold it. Discipline, not constant decision-making, drives long-term wealth creation,” Sahar noted.
The analysis also aligns with the psychological endowment effect, where investors value funds they already own. In this case, moderate attachment can reinforce disciplined investing, enabling investors to ride out market volatility and realise compounding benefits.
With the Indian mutual fund industry growing from ₹10 trillion to over ₹58 trillion in AUM over 15 years, Sahar urges investors to ground decisions in data rather than anecdotes. The evidence is clear: long-term returns cluster tightly, volatility smooths out with time, and patience is statistically rewarded.
“Next time you debate switching schemes, remember: it’s not sentiment—it’s statistics. The smartest move may simply be to stay invested,” he concluded.
This article is authored by Yaseen Sahar, an investment management expert