What's the gap between fund returns and investor returns over 25 years?
Scenario
Indian large-cap mutual fund delivering 12% time-weighted CAGR. Compare disciplined investor (continuous SIP) vs typical retail investor (FOMO entries, fear exits) over 25-year horizon.
Inputs
- Horizon years
- 25
- Monthly sip INR
- 15000
- Fund time weighted return %
- 12
- Typical investor return gap %
- 2.5
Calculation
- 1.
Disciplined investor: net CAGR (matches fund returns)
12% time-weighted → 12% CAGR
- 2.
Disciplined investor: 25-year corpus
₹15K × SIP-FV factor at 12%, 25 yrs → ₹2.83 Cr
- 3.
Typical retail investor: net CAGR (FOMO + fear drag)
12% − 2.5% behavioural gap → 9.5% effective CAGR
- 4.
Typical retail investor: 25-year corpus
₹15K × SIP-FV factor at 9.5%, 25 yrs → ₹1.89 Cr
- 5.
Cost of FOMO + fear behaviour
₹2.83 Cr − ₹1.89 Cr → ₹94.00 L
Conclusion
₹94 lakh of avoidable loss over 25 years from FOMO-driven entries and fear-driven exits — even on the same fund delivering the same time-weighted returns. The disciplined investor captures the fund's full return; the typical retail investor captures only ~80% of it.
Tradeoffs
The 2.5% gap is the AVERAGE; some investors capture more, others less. Investors with significant thematic/sectoral fund exposure typically face larger gaps (3-4%). Investors holding broad-index funds and continuing SIPs through drawdowns capture closest to time-weighted returns. The structural answer: own broad indices, automate SIPs, ignore market noise.