Only 18% of investors’ stock & mutual fund portfolios outperform their market benchmarks, reveals Dezerv’s study

Recently, an analysis of 27,000 stock investors’ portfolios with over ₹1 lakh holdings, highlighted that nearly 60 per cent of stock investors’ portfolios were underperforming their respective market benchmarks. The analysis was done using DEZERV’s Wealth Monitor app, a multi-asset tracking tool that allows investors to consolidate and monitor the performance of their mutual fund and stock portfolios by consistently tracking each of their portfolio's XIRR returns against market benchmarks.

The revelation is surprising and in line with the earlier finding of a similar percentage of mutual fund portfolios where the app had revealed that nearly 62 per cent of mutual fund portfolios were underperforming the benchmarks after analysing almost 300,000 MF portfolios. Below are the findings of the analysis done by the wealth monitor team:

Why Do Portfolios Underperform?

According to Sandeep Jethwani, Co-founder of Dezerv, “Underperformance can often be attributed to a few common factors: over-diversification, misaligned asset allocation, and overlooking periodic rebalancing. Many investors rely on mutual funds without fully understanding the underlying stocks within them, leading to unintentional overexposure in certain sectors and underexposure in others.”

Another common pitfall that most investors fall into is “recency bias”, the tendency to choose funds based on recent high returns. Studies have shown that very few actively managed funds in India consistently outperform their benchmarks over a long-term investment cycle, with even top-performing funds frequently failing to replicate past successes over time.

Jethwani emphasised that affluent investors, who often hold diverse portfolios, are particularly prone to these issues. The complexity of managing multiple funds and stocks without a clear understanding of future performance potential often affects overall returns.

Why investors should aim to outperform the benchmarks by at least 2 per cent?

Aiming to outperform market benchmarks by 2 per cent is essential for investors looking to build lasting wealth. First, this extra 2 per cent is vital in offsetting the higher expense ratios for actively managed funds, along with exit loads that may apply to short-term redemptions. Secondly, a minimum of 2 per cent alpha helps justify the time & resources an investor would devote to research, rebalancing, and optimizing their portfolios, ensuring the active management effort translates into meaningful financial gain. Achieving this level of outperformance can significantly impact an investor’s ability to grow wealth beyond market averages over time.

The Solution: Monitor, Analyse, and Realign with Dezerv’s Wealth Monitor

Dezerv’s Wealth Monitor app is designed to simplify portfolio monitoring, providing users with expert analysis tools to gauge performance against a benchmark. The app’s features allow investors to:

• Monitor Performance: Assess portfolios’ performance against benchmarks and pinpoint underperforming assets.
• Analyze Asset Allocation: Review allocation across large-cap, mid-cap, and small-cap stocks and mutual funds, identifying any skewed exposure.
• Receive Expert Guidance: For investors with over ₹50 lakhs, the app offers free 1-on-1 consultations with Dezerv’s investment experts to help realign portfolios for better performance and stability.

With over 35 per cent of investors’ portfolios struggling in stocks and mutual funds and current global market volatility, investors must assess their holdings professionally. The Wealth Monitor app and Dezerv’s team of experts can offer a detailed analysis that could help investors unlock potential gains and optimize their capital allocation.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Disclaimer: This article is a promotional feature and does not have journalistic/editorial involvement of Hindustan Times. The content may be for information and awareness purposes and does not constitute any financial advice.