Retail investors should focus less on chasing past returns and more on building disciplined, long-term portfolios, according to Feroze Azeez, Joint CEO at Anand Rathi Wealth, one of India’s most respected voices in wealth management and personal finance.

Speaking about market cycles, risk-taking, and mutual fund investing, Azeez said volatility is a natural part of equity investing and should not discourage long-term investors.

“Risk is the only thing that can materially change your financial position,” Azeez said, adding that Indian investors often view risk too negatively compared to developed markets like the US, where calculated risk-taking is encouraged.

Market corrections

According to Azeez, investors should understand that market corrections are inevitable and temporary. He noted that the Nifty typically declines 14–15% from its peak almost every year, making volatility a normal feature of equity markets rather than an exception.

“The gravity of markets is upward because companies continue to earn profits. Wars, crises, and corrections come and go, but markets historically recover,” he said.

Azeez also highlighted that periods of weak market performance often create attractive long-term investment opportunities.

“Any three-year period where the Nifty has delivered near-zero returns is usually one of the best times to accumulate equity investments,” he said.

Top mutual funds

One of the biggest mistakes retail investors make, according to Azeez, is selecting mutual funds solely based on recent performance rankings.

He warned that top-performing funds in one market cycle frequently fail to remain leaders in subsequent years.

“Past performance is one of the weakest predictors of future returns. Investors should stop buying funds simply because they topped return charts last year,” he said.

Instead, Azeez advised investors to focus on building diversified portfolios with realistic expectations rather than expecting every individual scheme to outperform.

“The objective should be to create a portfolio that can outperform the Nifty by 3–4% over the long term,” he added.

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Focus on risk-adjusted returns

Azeez emphasised the importance of evaluating investments through risk-adjusted return metrics rather than looking only at raw returns.

He recommended that investors pay attention to measures such as Jensen’s Alpha and Sharpe Ratio while assessing mutual funds and portfolios.

“Sharpe Ratio tells you how much return you are earning for every unit of risk taken. The higher the ratio, the better the investment efficiency,” he explained.

For portfolio evaluation, he said Jensen’s Alpha helps investors understand whether a portfolio manager generated returns above what was justified by the level of risk undertaken.

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Direct stock investing

Despite spending years in wealth management, Azeez revealed that he personally avoids investing in individual listed stocks because of the emotional decision-making involved.

“Stocks make investors emotional. Mutual funds help remove emotions from investing,” he said.

He added that retail investors often struggle to hold stocks during sharp declines, leading to poor timing decisions and wealth destruction.

On small-cap investing, Azeez said investors should pay close attention to management quality, governance standards, and promoter integrity, as smaller businesses tend to be far more management-dependent than large companies.

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Wealth creation

Azeez also stressed that wealth creation begins with improving earning capacity rather than chasing risky investment products early in life.

“Before your portfolio reaches ₹1 crore, your profession matters more than your investments,” he said.

According to him, once investors build a meaningful investment corpus, avoiding major mistakes and staying disciplined becomes the key driver of long-term wealth creation.

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