Retail investors getting modest returns from equity holdings: Report

Holdings have delivered barely positive returns amid a prolonged market correction, says KIE study

Retail investors’ equity portfolios have significantly underperformed benchmark indices over the past 16–18 months, delivering barely positive returns, according to a research note by Kotak Institutional Equities (KIE).

 

An analysis of direct and indirect equity holdings — including mutual funds (MFs) and portfolio management services (PMS) — shows that retail portfolios not only lag index returns but have also struggled to preserve capital during a prolonged time correction in the broader market.

 

KIE’s analysis of weighted-average net asset values (NAVs) of equity-oriented MFs indicates that retail investors earned only modest returns between July 2024 and December 2025, even as this period accounted for nearly 53 per cent of total MF inflows mobilised during calendar years 2022–25.

 

 

Weighted-average NAVs of midcap funds fell 3 per cent, smallcap funds 13 per cent and of thematic funds 13 per cent from the peak of September 2024. Overall, weighted-average NAV was down 1.4 per cent from September 2024.

 

This underperformance contrasts with positive returns delivered by major equity indices over the same period.

 

Returns from midcap, smallcap and thematic funds — segments that attracted the bulk of inflows over the past two years — were similar to or worse than overall equity MF returns over the past 18 months, further dragging portfolio performance.

 

Retail investors’ direct equity holdings have also struggled to grow. The AUM of retail investors in NSE-listed stocks has remained largely flat at around Rs 43 trillion over the past 18 months.

 

While retail equity AUM grew at a compound annual growth rate of about 15 per cent between 2021 and 2025, most of this increase occurred between March 2023 and June 2024. Direct retail flows into equities have tapered off in recent months.

 

KIE’s analysis of the top 20 retail-dominated stocks within the Nifty 500 Index shows that this basket has delivered negative returns since June 2024, following sharp gains between March 2023 and June 2024.

 

A similar pattern has emerged across select ‘narrative’ stocks with high retail ownership. According to the report, valuations in many of these stocks remain disconnected from fundamentals, even after recent corrections triggered by the failure of key investment narratives.

 

The study indicates portfolio management services (PMS) haven’t fared much better either. An analysis of the top 20 PMS strategies by AUM shows that only a handful delivered meaningful returns over the past 12 months.

 

Despite the subdued performance, the PMS industry continued to receive strong inflows during this period. KIE has cautioned that persistent underperformance could pose risks to future inflows into the segment.

 

(Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd)