Decoding Wealth Creation: Analysis on the Behaviour Gap in Investment Returns vs Investor Returns by Santosh Kedari CEO Sanriya Finvest Pvt Ltd.

Is wealth creation such a simple exercise? If so, we would have come across many successful investors. However, starting is simple, but sustaining it is tough, just like in relationships. 

All an investor wants is to get the Best Fund. But even the best fund failed to give returns to investors.

Peter Lynch, the famous fund manager, led the successful Fidelity Magellan Fund from 1977 to 1990. During that time, the fund achieved an incredible compound annual growth rate (CAGR) of 29%. However, investors in the fund only received 7% returns in the same period. In India, a 20-year study by Axis Mutual Fund (2003-2022) found that regular equity funds delivered a 19.1% CAGR, while investor returns were only 13.8% during this period.

What has caused the gap between fund and investor returns? Why does this happen?

It happens because of investors’ emotional and illogical behaviour, leading to unwise investment decisions, in a simple way doing dumb things with Investments, i.e., called a Behaviour Gap.

Common mistakes include:

1. Investors trying to time the market,
2. Overreacting to news,
3. Chasing short-term performance, and
4. Doing entry and exit at the wrong time or frequently, instead of being disciplined and sticking to their long-term plan.

It shows that investors are their own worst enemies when it comes to investing.

Lots of people wrongly think that investing is just about numbers, but in reality, it’s mostly about psychology. Unfortunately, this tends to lower long-term investment returns. It’s impossible to remove the certainty of uncertainty. Although we are aware that equity markets will fluctuate, the timing, duration, and magnitude remain uncertain.

Benjamin Graham’s wise words from his book, “The Intelligent Investor,” in 1929 still hold true today: “The Investor’s biggest enemy and worst problem is likely to be himself.”

In summary, successful wealth creation requires two things:

1. Emotional discipline
2. Consistent expert guidance.

To achieve long-term financial goals, it’s important to understand your emotions and avoid typical emotional mistakes. To address this, we formulate a financial roadmap, adhere to it, and bridge this gap.

Connect directly with Mr. Santosh Kedari on WhatsApp: Click here to message on WhatsApp.

Mr. Santosh Kedari CEO Sanriya Finvest Pvt.Ltd is a seasoned expert in the mutual fund arena and a Certified Financial Planner. He is committed towards bridging the Behaviour Gap in investments and offers tailored financial roadmaps for investors. For more information please visit, www.sanriya.net

Investment Returns vs Investors Returns > Behavioral Gap = Emotional and Illogical Investing Behavior with investments

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“What People think about Real Estate?”

People would buy land / property / flat / real estate and sell or rent it for profit. Even after the banks and other investment avenues, most individuals still prefer to invest in property to earn a regular income and create wealth. You start earning rental income every month if you invest in a property and rent it out. After 10 or 15 years, the price would have increased when you sell the property, providing you a lump sum pay out. Today, loan accessibility and affordability have made owning property convenient for individuals. As a outcome, real estate is now an asset class for the masses, which used to be an asset class for the classes.

“What People think about Fixed Deposit?”

A bank mainly accepts deposits at a particular interest rate from its customers and provides loans at relatively higher rates to potential borrowers, earning them the margin. Bank does not invest its own money. It takes money from customers with fixed deposits and offers it to borrowers. Over time, fixed deposits became for many individuals a preferred investment choice as they were easy and the bank guaranteed returns. Fixed deposits provide you with the convenience of an assured return, but those yields are minimal and also generally fall below inflation rates.

Calculations for 2 situations are given in the table below where someone invests in a flat and a fixed deposit.
Many of us think that investing in real estate and property is a sure shot cash doubling method in which you can double your investment in a couple of years as demand for real estate is increasing more than ever before and individuals have a lot of disposable income. To find out which one is better, let’s do a small assessment. Investing the money in FD / RD or buying a property by taking a loan.
Few assumptions:
1] For investment purposes, a ready possession flat is brought on loan and will be sold at double the purchase price after 5 years.
2] ₹. 1 Cr Flat Cost. (₹ 20 Lakhs down payment and 80 Lakhs loan)
3] Flat given on rent. Every year, flat price and rent increased by 5%
4] The flat is sold at twice the price, i.e., after five years at ₹ 2 Cr.
5] Then compare the returns with another scenario where somebody invests the same amount as the down payment, the registration fee, the stamp duty amount in a fixed deposit and the EMI payments in a recurring deposit.
6] It shows that the post-tax returns at the end of five years demonstrate better yields from the second situation (of FD / RD).

Which is the best investment to make in the long term? Property, fixed deposit, Stocks (equity) or direct equity through mutual funds?

Short reply: Equity (through Mutual Funds or directly stocks if you are expert). “I got wealthy by investing in FDs and by buying insurance policies ,”– no one ever said.

Long reply? Read on. 

What People think about Equity Mutual Fund (Stock Market)?

Many of us have often thought we’d rather get ‘ lower but safer ‘ returns from FDs than higher but volatile returns from equity mutual funds. If we invest on this basis, two significant points will be overlooked. 1] Equity markets are less long-term volatile and return are much higher than FDs or even real estate (and equity mutual funds make investing in stock markets very easy for individuals). 2 ] The returns we receive from FDs do not add wealth because inflation is nullified.

Investing in equity has generated an average annualized return of 16%. Short-term equity markets are certainly volatile (risky) – they have delivered +81% for one year and down -52% for another year, but they become less volatile over longer time horizons (and generate higher returns).

Equity returns are always over and above the inflation rate, i.e. 7.85% annualized over the past 40 years on average. Unfortunately, when we look at returns on our investments, inflation is a truth that we do not consider. We look at isolated returns and they often seem better than they really are worth. The lowest is fixed deposits (FDs) that are only 6.5% to 8% pa (but without volatility).

Basically real estate delivers only about 5 to 7% returns. (otherwise the Ambani’s, Tata’s, Birla’s, India’s Kotak’s of India would have had all their money in real estate rather than invested in businesses.)

Investing in mutual funds for wealth creation is a much better instrument. If long-term financial goals require you to play it safely despite minimal returns, then stick to debt mutual funds. However, if the creation of wealth is on your radar, it is necessary to invest in equity mutual funds. One of the most common investment vehicles since time immemorial was fixed deposit, property, equity. They are very distinct, however, and meet distinct investor requirements, whether you are planning a short-term or long-term investment.

Your portfolio of investments should be a nice blend of investments in debt (FD type / fixed income / low risk) and equity (medium risk). Low-risk investments, however, generally provide stability and guaranteed returns. Investing in fixed deposits, property, mutual funds (equity) therefore has its own benefits and disadvantages. Therefore, before you begin looking at investment options, you must ensure that you work on your goals and financial plan.

Remember, as an investor, you need to spend some time evaluating your financial targets, risk preference, and time horizon. These three variables will assist you to determine the assets you can invest in and meet your goals. Talk to an investment advisor and take his help to creation of an investment plan. Your financial independence is dependent on how efficiently you create and implement your financial plan.

Reasons Not To Invest In Real Estate / Flat / Property:

There are few primary reasons why intelligent investors should avoid investing in flat / property:

 ♦ No Assured Returns: An unforeseeable property return (price). (The price will be decided by the buyer). Many individuals think there is always a increase in estate prices.
♦ Price will skyrocket or fall just because of the place of the property, building quality, which makes the property an unexpected asset class. There may be downs on the estate market. In 1995, prices in Mumbai, Hyderabad, Delhi and other towns were corrected for up to 45% for 10 years. It depends on a number of factors. If the markets are declining, then you may have to wait a little longer.
♦ An asset class under performance: most properties generate more or less the same returns over a period as Fixed Deposit.
♦ Most of the illiquid assets are property. Real Estate is the market of a buyer when you need money as a matter of urgency and finding a buyer is not simple. Usually an urgent sale gets much less than the asset’s true value. Price is negotiated with a lot of legal hassle like vegetable.
♦ It has hardly beat inflation
♦ Offer an annual rent between 2% to 3% of the total value of property – less than the returns on an FD and less than the EMI payments.
♦ 100% Occupancy is not ensured (by landlord).
♦ Investors who blindly believe in real estate tend to recognize only windfall gains stories
♦ Real Estate is a category of emotionally charged assets, as owners tend to connect properties to memories and feelings such as births, weddings, deaths, etc., which is why most investors forget about unnoticed return on investment.
♦ Investors may face endless litigation for many reasons, such as family conflicts, tenant encroachment or anti-social aspects, a government entity seeking property for a public project, government record ambiguity, etc.
♦ High maintenance efforts to maintain house in order. You have to pay taxes and utility bills, keep it in good condition, and also find fresh tenants when and when necessary. It needs time and energy at all times. Many people believe that investing in real estate is a lifelong expense.
♦ Property performance monitoring has many challenges. In Mutual Funds, you can monitor their output on a regular basis by clicking a button. But if you own 5 properties, can you check them physically every day?
♦ Alterations, Changes, value-addition does not produce returns, an investor may add equipment, interior decoration and gadgets to improve the experience of living in a property, but the next investor may want to customize the property differently and will therefore not be willing to compensate the seller for the additional investments made.
♦ Buyers and sellers often can’t agree on even Vaastu
♦ Even for small issues with society or neighbors, you can’t change home anytime. You can’t change your home anytime you want to move to another town for better employment. Even if you want to manage the traffic from one location to another, you can not change home at any moment. You can’t change your home anytime, even if you need a family from 2 BHK to 3 BHK etc.
♦ You can not change your flat at any moment, even if your tax benefits decreases, (like the principal’s 80C and interest’s 24(b).) You can’t change home whenever a new cosmopolitan area comes in the town that’s better than where you’re staying now. If you move out of town, it’s a issue to find a tenant. A tenant who can turn your dream home into a dirty home, and so on.

Disclaimers: This subject is solely from a financial / investment point of perspective. We won’t take in any psychological or emotional elements. And ultimately it’s up to you to decide what’s better. Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. Past performance of the Sponsor/ Mutual Fund/ Investment Manager are not indicative of the future performance of the Scheme(s)

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A personal or household budget is an itemised list of expected income and expenses that helps you plan how you’ll spend or save your money as well as track your actual spending habits.

Tracking your expenses might be challenging, especially if you’ve put it off for a long time or have never done it before. But if you start looking at your budget and finances seriously, you’ll feel relieved and in charge. Getting control of your finances and loans pays off nicely: peace of mind and no more loans!

When it comes to keeping track of your expenditures, there are a variety of reasons to do so. Perhaps you want to know where your money goes, are working toward a specific goal, or want to get rid of your debt for good. Whatever your purpose, we have the tools and resources to assist you in getting started.

Keep track of your income and expenses with this monthly budget planner format. Choose from a list of comprehensive expense categories using a simple Excel spreadsheet, then personalise things by renaming any category to make tracking easier.

Expense Categories – Know Where Your Money is Going

Housing: mortgage, rent,  house insurance, property taxes

Utilities: phone/cell, cable/internet, gas, security

Household:  water tank, roof and redevelopment, decor, upgrades, storage locker, gardening, cleaning services, outdoor equipment and maintenance

Groceries: food, baby needs, household supplies, toiletries

Living: personal care, bank fees, salon and spa services, dry cleaning, pet costs, memberships (fitness, clubs, associations)

Transportation: fuel, auto insurance, transit, parking, taxi, rentals, car sharing, tolls

Health Care: medical premiums, life insurance, medication, eye care, dental, supplements, wellness costs

Personal: tobacco, alcohol, books, music, clothing and shoes, donations, subscriptions

Eating Out: meals, snacks, take-out, beverages (coffee, tea, juice, soft drinks)

Entertainment: recreation, sports equipment and fees, movies, concerts, hobbies, gaming

Child: daycare, lessons and activities, allowance, school supplies and fees, babysitting, programs, tutors

Debt Payments: credit cards, loans, leases, support payments, government debts, personal debt

Savings: emergency fund, seasonal expenses (e.g. car repairs or maintenance, travel – vacations or staycations, gifts for birthdays or holidays, assisting family or friends)

Business Expenses: materials, labour, taxes, professional or administrative fees, human resources, uniforms or clothing

Job Title:  Jr & Senior Operations Executive–Back Office.

No of Vacancies: 2

Job City: Pune

Company Profile : Sanriya Finvest Pvt. Ltd is among the leading mutual fund distributors in India and servicing its client base spread across India and the globe. For more information about the company visit: http://www.sanriya.net/

Desired Candidate Profile :

• Candidates having 1-5 years of work experience with Mutual Distributor / RIA Operations / related to financial industry will be given preference.
• Graduate (50%+marks), B.Com Preferred, NISM V-A certifications would be an added advantage.
• Opportunity for Pune-based candidates only.
• Good command over written & spoken English is essential.
• Knowledge with MS Office Word / Excel operations.
• Handling Mutual Funds transactions on online platforms is a plus (NSENMF, BSEStarMF, MFU, etc).

Roles and Responsibilities :

• Managing the Mutual Fund Distributor’s back-office activities, including handling documents for investment products such as mutual funds and other financial products
• Data management for the portfolio, as well as daily database maintenance.
• Client servicing and implementation requests are managed according to agreed-upon TATs.
• Client servicing data and software management and upkeep.
• Managing daily back-office operations in accordance with established systems and procedures.
• Coordinating with team members for documentation and client servicing management.
• Sending emails well-drafted in English within the strict turnaround times.
• Reporting Sending of portfolio reports/tax reports / any other reports report generation and sending and General office administration
• To ensure investment plan execution with 100% accuracy and zero error.
• Managing and Maintaining integrity of the database, data back-ups.

Salary Range : Rs. 1,80,000 to 3,60,000 p.a. depending on experience and skills.

Contact No : 9552537696 / 25 Email: spk@sanriya.net

A Consolidated Account Statement (CAS) is a comprehensive report that brings together all your mutual fund transactions and holdings into a single document. Whether you’re investing for retirement, your child’s education, or planning an emergency fund, the CAS offers a complete picture of your portfolio, making it easier to track and manage your investments across various fund houses and securities.

Issued by the 10th of every month, the CAS details all your transactions—such as purchases, redemptions, and switches—along with distributor fees and the closing value of your investments. If you’ve registered your email ID, the CAS will be delivered electronically; otherwise, it will be sent to your registered address. You can also conveniently download it from platforms like CAMS and KFintech (Karvy).

For anyone seeking goal-based investing or wondering how to start goal-based investing in India, the CAS acts like a monthly report card, helping you stay organized and make informed decisions. It supports better budgeting and financial planning, essential for setting up strategies like a vacation savings plan or investment planning for a home purchase.

Whether you’re working with a certified financial planner, a wealth management consultant, or looking for a financial advisor in Pune, this statement is a vital tool. As a trusted mutual fund distributor in India, we recommend reviewing your CAS regularly to optimize your investment strategies for wealth creation and ensure your portfolio stays aligned with your financial goals.

To access your CAS, simply visit the CAMS or Karvy website, log in, and download the statement—it’s a small step that makes a big difference in your financial journey.

A Consolidated Account Statement (CAS) offers a unified view of your mutual fund investments. With guidance from a mutual fund distributor, investors can align their CAS insights with goal-based investing — from child education investment plans and retirement planning to emergency fund planning and vacation savings plans. A trusted mutual fund advisor in India or certified financial planner can help structure your wealth creation strategies with personalized financial planning services.

The new rule regarding the applicable Net Asset Value (NAV) for mutual fund transactions, which occurred on February 1, 2021, requires that the NAV for all purchase transactions be determined based on the realization of funds. This rule was already in place for liquid and overnight funds and has now been extended to all mutual fund schemes. The key change is that the funds must be available in the mutual fund’s bank account before the cut-off time for the NAV to be applicable for that business day.

The value of a mutual fund, known as its Net Asset Value (NAV), changes daily. The NAV at which you buy or sell mutual fund units depends on when you submit your transaction. This is determined by the cut-off time and the deadline for submitting your investment or redemption request.

Key Points:

• Cut-off time refers to the specific deadline for transactions to be processed for the same day’s NAV.
• NAV (Net Asset Value) determines the value of your mutual fund units. If the transaction is completed before the cut-off time, the NAV of that day applies. If it’s after the cut-off, the next business day’s NAV applies.
• For SIP or lump sum transactions, if the funds are received after the cut-off, the NAV of the next business day will apply.

Examples

• Lump Sum Purchase: If a ₹50,000 transaction is made on Thursday, February 11, 2021, before the cut-off time of 3:00 p.m., but the funds arrive after the cut-off time, the NAV for Friday, February 12, 2021, will be applicable. If funds arrive after 3:00 p.m. on Friday, the NAV for Monday, February 15, 2021 (due to the weekend) will apply.
• SIP Transactions: If an SIP payment is scheduled for the 10th of each month, the NAV for that date is applicable only if the funds are credited to the mutual fund’s account before 3:00 p.m. on the 10th. Otherwise, the NAV for the next business day will be applied.

Inter-Scheme Switching

For inter-scheme switches:

• Switch-out transactions: Treated as redemptions and processed at the same day’s NAV if received before the cut-off time.
• Switch-in transactions: Treated as purchase transactions and processed based on the fund realization, applying the NAV of the business day when funds are received before the cut-off time.

NFO and Dividend Reinvestment

• NFO Subscriptions: Units are allotted based on the realization of funds before the NFO closure date.
• Dividend Reinvestment: Units are allotted at the ex-dividend NAV.

• The new rule emphasizes that mutual fund transactions (whether through physical or online platforms) will be processed only when funds are realized, ensuring transparency and accuracy in the NAV allocation. This reduces the possibility of discrepancies and promotes better investment planning.

Our View: While knowing these cut-off timings is good, don’t stress too much about them. If you’re investing a large amount, it might make a difference. But for smaller amounts, a day or two here or there usually won’t affect your investment in the long run.
Mutual fund cut-off time, NAV cut-off time for mutual funds, Mutual fund transaction cut-off time, NAV for mutual fund transactions, SIP cut-off time, Liquid fund NAV timing, Redemption cut-off time for mutual funds.

Understanding the cut-off timing for mutual funds is crucial for effective planning. A mutual fund distributor in India or mutual fund advisor in Pune can guide you in aligning your investments with your goals — whether it’s retirement planning, a child education investment plan, or long-term wealth creation strategies. Take the next step with expert financial planning services tailored to your needs.

Mutual funds are a popular investment choice for diversifying their portfolios and achieving financial goals. However, navigating the complexities of mutual fund investments requires expertise. A mutual fund advisor can play a pivotal role in aligning your investments with your goals, risk tolerance, and financial timeline. Here’s a guide to understanding their role and selecting the right one.

Role of a Mutual Fund Advisor

A mutual fund advisor specialises in helping investors make informed decisions by:

• Identifying Financial Needs: They assess your financial situation, goals, and timelines to recommend suitable investment strategies.
• Risk Assessment: Advisors evaluate your risk tolerance and help choose funds aligning with your comfort level and objectives.
• Portfolio Management: They suggest diversified portfolios tailored to your goals, periodically reviewing and rebalancing to match market conditions.
• Education: Advisors explain various mutual funds’ benefits, risks, and limitations to ensure informed decisions.
• Proactive Adjustments: Monitor your investments; they recommend course corrections during market changes or life events.

Key Qualities to Look for in a Mutual Fund Advisor

1. Experience and Market Knowledge:
   Advisors with substantial experience, especially through market fluctuations, are better equipped to navigate challenges.
2. Client-Centric Approach:
   A good advisor prioritizes your financial goals over personal commissions, focusing on strategies that benefit you.
3. Transparency in Communication:
   They should provide clear details about investment plans, associated charges, and potential risks.
4. Professional Credentials:
   Look for advisors certified by organizations like AMFI (Association of Mutual Funds in India) or holding CFP (Certified Financial Planner) qualifications.
5. Proactive Engagement:
   An effective advisor provides regular updates, is accessible for queries, and maintains open communication about portfolio performance.
6. Tailored Asset Allocation:
   A good advisor customizes your portfolio based on your risk profile, financial goals, and investment horizon, ensuring proper diversification.

How to Choose the Best Advisor

• Referrals and Reviews: Speak to other investors to gauge an advisor’s effectiveness.
• Evaluate Investment Philosophy: Ensure their approach aligns with your goals and comfort level.
• Understand Compensation Models: Be wary of advisors who prioritize funds offering higher commissions over client needs.

Conclusion

A mutual fund advisor simplifies the complexities of investing, helping you achieve financial success. Choose an advisor who combines expertise with a client-first approach, ensuring your portfolio aligns with your evolving goals. Regular communication, transparency, and proactive management are hallmarks of an excellent advisor, making them invaluable partners in your wealth-building journey.

Choosing the best mutual fund advisor involves evaluating experience, transparency, and alignment with your financial goals. A trusted mutual fund distributor in Pune or certified financial planner can assist with goal-based investing, from child education plans to retirement planning. Discover tailored financial planning services designed for long-term wealth creation strategies.

In 2018, the Securities and Exchange Board of India (SEBI) introduced a significant change in measuring mutual fund performance. SEBI mandated that mutual funds use the Total Return Index (TRI) instead of the Price Return Index (PRI) to provide a more precise and accurate picture of fund performance.

An index is a tool that measures how a group of stocks performs. For example, Nifty50 tracks the performance of 50 large companies listed on the stock market. The value of an index changes based on the price movements of the companies it includes. Mutual funds use these indexes to compare their performance. If a fund’s return is higher than its index, it is said to have outperformed it.

An index measures the performance of a group of stocks, and mutual funds use these indexes to compare their returns. For example, the Nifty50 tracks the performance of 50 large companies. When comparing a fund’s returns to the Nifty50 index, it has outperformed the index if the fund’s return is higher.

Price Return Index (PRI)

The Price Return Index (PRI) only considers the price change of stocks in the index. It measures how much the stock prices go up or down but ignores any dividends or interest earned from those stocks. For example, if an index rises by 10% but pays out a 2% dividend, PRI would only show the 10% price rise, not the total return, including the dividend.

Total Return Index (TRI)

The Total Return Index (TRI), on the other hand, provides a fuller picture. It considers both the capital appreciation (price changes) and any dividends or interest paid by the companies in the index. This means TRI assumes that dividends or interest are reinvested into the index. So, if an index shows a 10% rise in price and a 2% dividend, the TRI would show a total return of 12%.

Why the Switch from PRI to TRI?

The shift to TRI has dramatically impacted how we understand mutual fund performance. PRI could sometimes be misleading because it ignores dividends, an essential part of an investor’s return. With TRI, investors get a complete picture of their earnings, including both price changes and dividends.

For example, a fund might show a return of 7%, but if the PRI return is 6.5%, it could seem like the fund has outperformed the benchmark. But when you add dividends, the benchmark’s return might be 8%, meaning the fund didn’t perform as well as it seemed.

Key Differences Between PRI and TRI

 Conclusion

The switch to TRI ensures investors get a more realistic and transparent view of mutual fund performance. By including price changes and dividends, TRI clarifies how well an investment is performing, helping investors make more informed decisions about their investments.

Understanding the TRI vs PRI benchmark difference is key for evaluating mutual fund performance. A mutual fund distributor in India or certified financial planner can help investors use such benchmarks to inform goal-based investing, whether it’s retirement planning, a child education investment plan, or broader wealth creation strategies through tailored financial planning services.

Mutual Fund investments are subject to market risks. Always read the scheme-related documents carefully before investing.