Sebi Investor Survey 2015 Throws Up Interesting Insights About Mutual Fund Investor Behaviour

In 2015, SEBI commissioned a landmark report titled the "SEBI Investor Survey", the results of which were made available only recently. For preparing this report, the forward-looking regulator surveyed close to 5,000 households across the country on various aspects of their investment preferences and patterns. Some of the key findings detailed in its chapter titled "Mutual Funds: Investment Behaviors and Investment Patterns" are worth considering for all Mutual Fund investors.

Conflicting Beliefs And Actions
Interestingly, the survey uncovered multiple areas in which investor beliefs conflicted with their actions, resulting in a cognitive dissonance of sorts. For instance, the report states that "Although 58 percent claim that they will hold on to their MF investments in times of market volatility, less than a quarter of investors continue with their MF investments beyond a three-year period."

This is a very interesting observation indeed, and goes on to highlight just how different 'knowing' and 'doing' are. It also raises questions on risk profiling questionnaires that consist mainly of questions that are 'situational' in nature than those that aim to draw out hard facts about an investor's current financial situation - it's entirely likely that when faced with a real-life scenario of market capitulation, investors will be prone to react very differently from what they declared while filling out their questionnaires!

Furthermore, the fact that a very high 68 per cent of all respondents claimed that they read the "Risk Factors" section of the Scheme Information Document (SID) illustrates that merely reading about the risks inherent to a Mutual Fund scheme will not necessarily prevent investors from exiting in panic during volatile markets.

The disturbing fact that 78 per cent of MF investors dump their holding before 36 months (an astounding 57 per cent before 12 months) throws up unforeseen industry risks. For instance, just how many of the 77.4 lakh folios that were added with such panache in the last fiscal, will actually go on to survive an extendedly muted market phase - or worse - a bear phase?

High Degree Of "Tech Awareness" — But Low Utilization
The SEBI study also observed that "Although most investors (88 per cent) are aware that MFs can be bought online, the Internet is neither a primary source of information for MFs (only 24 per cent use it) nor it is a primary method of investing in MFs".

In this regard, it is possible that trust deficit that holds investors back from going online to purchase and manage their investments - with or without the support of an Advisor. Resultantly, 35 per cent of respondents view "non-accessibility of forms" as the primary impediment to investing into Mutual Funds.

As industry-led awareness campaigns pick up pace and the effects of far reaching and well-endowed programs such as AMFI's "Mutual Fund Sahi Hai" start making an impact, we'll likely see some of this trust deficit evaporate, as some of the mystique surrounding Mutual Funds (which were really intended to be a hands-off investment product for the lay investor) weans away. As more people go online to seek information on MF's and execute their transactions, penetration levels should go up significantly.

Key Takeaways
From an investor's benefit, the SEBI study has two useful takeaways. First, go beyond merely reading about the risks involved in a fund, and introspect more deeply on how you would potentially react during volatile markets. Preferably, study the worst quarter and worst year return of a fund (available on sites like Value Research) and envisage your money having slipped that far into the red, and assess how you'd potentially respond. Don't make the mistake of investing directly into Mutual Funds, unadvised - an Advisor serves a valuable role in helping you take nonreactive investment decisions.

Second, aim to consciously embrace technology as a means of enhancing your MF investing experience. Don't let paperwork hold you back from committing a larger chunk of your savings into what is arguably the best wealth creation instrument available to most investors today. Importantly, know that technology and advice are not mutually exclusive - there are plenty of MF Advisors available today that will provide you with a satisfying online experience while providing quality recommendations. Seek them out.