Why Retail Investors Lose Money and How to Save Tax Legally

SEBI's own data, as cited in this episode, says around 94 percent of market participants make losses. So how do a few people still build wealth in the same market? In this episode of The Sarvesh Mishra Show, fund manager Ashutosh Pande explains who sits behind your money, where retail investors go wrong and how tax quietly eats returns.

Share Market | Fund Manager Exposes the Hidden Truth About SIPs & Wealth Creation | Sarvesh Mishra · 1 hr 25 min

Figures and product examples as stated by the guest. Treat them as his view, not a recommendation.

Why retail investors lose money

Ashutosh describes two kinds of loss.

The first is total erosion of capital in futures and options. A person puts in 1 lakh rupees and it goes to zero. He compares it to a lottery, where the licence holder wins and the player usually does not. He names Jane Street as an example of the talent, data and computing power a retail trader is up against.

The second is the loss in direct stocks and ETFs. Investors enter at the wrong time, exit at the wrong time or pay too high a valuation. His analogy is buying dal at 500 rupees a kilo when supply is tight. Some ETFs bought at 220 fell back towards a fair value near 120.

How the market ecosystem works

Ashutosh describes the chain of people involved in your money:

• Companies run the businesses. A stock falling does not mean the company has shut down. He cites the Hindenburg report on Adani, where the stock fell but the business kept running.
• Investors put money in, and wrong timing hurts them.
• Brokers such as Zerodha and Groww give you market access. Always use SEBI registered platforms.
• Advisers convince you to invest and hold SEBI certification.
• Wealth managers divide money into buckets based on age and profile.
• Fund managers decide which sectors, which names and when to enter or exit. They are the ones taking the final call on valuation.

Valuation: the skill most people skip

How do you know the right price? According to Ashutosh, fundamental analysis carries roughly 80 percent of the weight, with technical analysis adding a smaller part. It tells you the real value of a stock, fund or ETF. If you pay far above that, a loss becomes likely.

How to save tax: the method he suggests

This was the most practical part of the episode. Ashutosh focuses on people in the top tax slab who keep money in fixed deposits.

• The FD problem. An FD at around 7 percent can leave you with roughly 5 percent after tax if you are in the highest slab, because interest is taxed at your slab rate.
• Arbitrage funds. They give returns close to FD rates but are taxed like equity. His example: on a 50 lakh FD held for 5 years, an arbitrage fund could save about 5 lakh in tax. He says capital loss risk is very low when you pick the right fund through the right adviser.
• SIF (Specialised Investment Funds). Launched with SEBI approval, with a minimum ticket of 10 lakh. These use hedging and diversified strategies. His claim is that in a crash an SIF may fall about half as much as the market, though nothing is guaranteed. Long term gains are taxed at 12.5 percent, against more than 30 percent on FD interest.
• Multi asset funds. These mix equity, gold, silver, REITs and InvITs. Funds that increased gold exposure created alpha while pure equity stayed sideways.
• REITs and InvITs. REITs let you own a fraction of large office buildings and receive a share of rent. InvITs give exposure to roads, toll plazas, pipelines and airports. Ashutosh says REITs are taxed in an equity like way, and InvITs carry a bit more risk.
• NPS for salaried people. Ask your employer to contribute to NPS instead of paying you that amount as salary. He calls it a tax friendly, low cost product for long term retirement.

Tax rates and product labels change. Confirm current rules with a tax professional before you move money.

Understanding SIF, PMS and AIF

Ashutosh gives a simple ladder of products by minimum ticket size:

Category 1 and 2 AIFs often invest in unlisted companies, private credit and real estate. Category 3 works in listed markets. Only AIFs can invest in pre IPO companies. The guest says some AIFs manage thousands of crores, and in good markets they can behave like a rocket.

Practical application: what should you do?

If your portfolio is under 10 lakh: Avoid direct stocks unless you can research seriously. If you must try, keep direct equity to about 10 percent of your total capital and put the rest in mutual funds through a certified adviser.

If markets fall: Keep your SIP running. If you have spare money, you can add a lump sum. Ashutosh calls this doubling down, but only when you have confidence and knowledge.

Watch the full episode

Share Market | Fund Manager Exposes the Hidden Truth About SIPs & Wealth Creation | Sarvesh Mishra