AMCs have been telling customers for years that mutual funds sahi hain, but data from India’s largest stock broker suggests otherwise.
Zerodha CEO Nithin Kamath has said that the company’s equity investors are outperforming customers who’ve bought mutual funds. “As strange as it sounds, our equity investors are sitting on higher overall notional gains than equity mutual fund investors,” he posted on X. “Maybe the popular narrative that retail investors are clueless and “gambling” isn’t fully accurate. That’s because you would expect direct equity investors to do worse than mutual fund investors,” he added.
Kamath however clarified that his data might be slightly skewed because Zerodha got most of its inflows after 2020, and the markets have been on a bullrun since then. “Disclaimer: Most of our AUM was added post-2020, which is one of the biggest bull markets India has seen,” he added.
It’s a fairly unusual data point: conventional financial wisdom suggests that professionals who run mutual funds would get better results picking stocks than retail investors, but India’s largest broker says that investors who picked their own stocks seem to have done better than those who chose mutual funds. This wouldn’t be the best look for the mutual funds industry — mutual funds charge clients a certain percentage of their money to manage their money, but if clients — at a scale as massive as Zerodha’s — are getting better results through doing their own research, it calls into question of whether it’s wise to invest in mutual funds at all.
Zerodha hasn’t been shy about sharing unusual data points like these. In the past, the company has gone ahead and said that less than 1 percent of stock market traders fail to beat FD returns over a three-year period. But Kamath’s latest claim is bound to raise eyebrows, both among investment professionals and the broader retail investing community. It’s possible that like Kamath says, the data could be skewed because most of Zerodha’s clients have invested during a bull-run, and hence sit on better returns. Also Zerodha is launching its own index funds, so it could have an incentive to make mutual funds look less impressive in comparison. But regardless of the reason, the fact that India’s largest broker says that retail investors picking their own stocks are beating mutual funds is a pretty remarkable development in itself, and could point to an interesting new trend in India’s booming equity markets.