In my recent study I have observed that many investors opt for direct investments without having a Financial Advisor. In this edition let’s focus how disadvantageous is investing without an advisor.
According to a Karvy report, which analyzed investor behavior in a stable market and a volatile market, while direct investments have increased, investors who invested mutual funds through direct plans redeemed their investment when the markets turned volatile.
Over 80% of the redemptions were carried out with a holding period of less than one year in case of direct investments. In fact, over 60% of such investors redeem their investments within 3 months in volatile markets.
It is clear 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. On the other hand, investors who have invested in regular plans of equity funds stay put for long term as well as they opt for Top-up of their funds following their IFAs (Independent Financial Advisors) advice.
Equity Mutual Fund is not a product meant for short term investments. An advisor can handhold the Investor during volatile market conditions so that an Investor doesn’t back off.
“Over 80% of the redemptions were carried out with a holding period of less than one year in case of direct investments.”
In Volatile Market situation :
Fund Redemption ratio of Direct Investor is higher than Regular Investors as IFAs have the highest value of investors who have redeemed only after a minimum two years holding period. In fact, nearly 40% of their investors had a holding period of near five years. Apparently, regular investors make 5 to 10 times more money than direct investors.
This research was carried out in both market conditions : non-volatile phase and volatile phase.
Redemption Ageing:
Non – Volatile Phase during April 2015 – March 2016 (Rs. In Crs): Analyzed Period 1
Volatile Phase during April 2016 – November 2016 (Rs. In Crs): Analyzed Period 2
This clearly indicates that as soon as markets turned volatile, direct investors decided to move out of mutual funds while distributors, especially IFAs, could convince their investors to stay invested for benefits of long term investments. Hence to become a smart Investor, join your hands with an advisor and he will make your financial journey beautiful.