The MF industry has built an entire theology around a single, reasonable observation: most investors trade too much and would be better off doing nothing. The observation is correct. A 2007 Journal of Banking & Finance study, 'Mutual fund flows and investor returns: An empirical examination of fund investor timing ability', looking into of 7,125 US equity-fund share classes across 1991-2004, found that investor timing cost 1.56 percentage points annually.
Peter Lynch's Fidelity Magellan Fund compounded at 29.2% a year over his 1977-90 tenure. The average investor in the fund reportedly earned only about 7%. The culprit in both cases was investors' desire to time the market by buying after good returns, and selling after bad ones. India's 'SIP karo, bhool jao' was engineered precisely to neutralise this behavioural tendency. And for most investors, across most market conditions, it works.
