Investor maturity is a myth, and the flow data proves it

The idea of a maturing Indian investor has rarely faced a tougher audit than it did over the past year. While mutual fund flows, rising systematic investments and a broadening investor base are often cited as evidence of growing maturity, the actual pattern of money movement tells a far more sobering story, one where recent returns remain the principal driver of allocation decisions, not disciplined strategy or fundamental valuation. Take precious metal ETFs, for instance. Combined assets under management for gold and silver ETFs surged past ₹3 lakh crore by January 2026, driven by record net inflows that in recent months have eclipsed flows into equity mutual funds. This was no coincidence. It was clearly driven by the staggering returns delivered by precious metals in 2025. Gold ETFs posted gains in the region of 70% to 80%, while silver delivered well over 100%, far outpacing the modest single-digit rise in major equity indices. Contrast that with equity flows. Even as equities are positioned as the default long-term asset for savers, net equity mutual fund inflows moderated sharply, sliding nearly 40% from their mid-2025 peak. The slowdown did not coincide with a wholesale retreat from equities, nor with a shift to fundamentally cheaper assets, but with a clear movement toward higher recent performance. Investors chased metals that had already delivered outsized gains and moved away from equities generating flatter returns. This behaviour is exactly what behavioural finance research, including Morningstar’s Mind the Gap study, has long highlighted. Investor returns often trail fund returns because individuals buy after performance has already escalated and hesitate or sell when results cool. The gap between fund returns and what investors actually earn is real. And persistent. It’s driven largely by late entry and early exit behaviour. In a Morningstar Mind the Gap analysis for the Indian market published in April 2022, the average investor’s realised return was meaningfully lower than what a simple lump-sum, buy-and-hold approach would have delivered, largely due to poor timing decisions, essentially buy high, sell low behaviour. The numbers tell an uncomfortable story. Investors earned about 7.8%, 6.3% and 6.5% per year on the average rupee invested across mutual fund categories over the three-, five- and ten-year periods ended June 30, 2022. This was nearly 2.7 percentage points, 2.5 percentage points and 5.8 percentage points lower, respectively, than the total returns generated by the funds over the same horizons. A near six percentage point gap is meaningful. That is roughly the return fixed-income investors earn in India, and often even lower on a post-tax basis. The gap was even more pronounced at the category level. A pharma fund delivered a three-year return of 23% as of April 2022, but the average investor earned about six percentage points less, largely because heavy inflows followed strong performance after the pandemic hit in 2020. Investors piled into the theme after returns had already materialised and exited when momentum faded. The same pattern repeats across funds. A decade-long study showed that a fund’s entire outperformance over its benchmark was driven by just six months of returns, meaning investors who missed those periods ended up underperforming the benchmark. Similarly, although the best-performing equity fund delivered around 40% returns over the three years to April 2022, the average investor earned only 20%, as nearly 75% of inflows came in the final year, after most of the gains were already made. This pattern is visible again today in flows that spike into hot categories after strong performance, such as gold and silver ETFs in 2025, and moderate sharply in areas where returns are flat or volatile. The rise of SIPs and consistent retail participation is encouraging, but SIP discipline alone does not offset the broader tendency to chase categories that are recent winners and underweight those that are going through a trough. The net result is investors often lock in suboptimal, and often poor, outcomes relative to what the market or the product itself delivered. If investor maturity were truly taking hold at scale, capital would flow less in response to recent past returns and more towards undervalued opportunities, or at least in line with long-term strategic asset allocation. Instead, both flows and outcomes continue to hinge on recency bias, the same behavioural pattern documented across markets and cycles. Until this changes, meaning until investors buy when assets are out of favour and stay invested when returns are muted, the narrative of widespread investor maturity will remain more myth than reality.