How Investor Behaviour Shapes Investment Returns
Understanding your own behaviour is the first step toward better investing.
Mar 2026
3 mins read
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Gold and silver have been in the spotlight recently. Silver has gone up by 131% over the last year as of March 18, 2026, and gold has risen by 64% in the same period. Because of this, Indian Gold ETFs saw their highest ever inflow of ₹24,039.96 crore in January 2026, more than any equity or hybrid fund category (Source: AMFI).
There is nothing wrong with investing in gold or silver for diversification. The problem begins when normal optimism turns into overexcitement. That’s when investors often make poor decisions.
Why investors get carried away
When prices of any asset keep rising, investors naturally feel:
• More confident
• More optimistic
• More willing to take extra risk
This overconfidence can cause you to:
• Put too much money into recent winners
• Ignore warning signs
• Underestimate the chance of a correction
You may also start paying attention only to news that confirms your positive views (confirmation bias). On top of that, when you see others making profits, herd behaviour pushes you to join in, assuming the trend will continue forever. Because of this, many investors end up buying at very high prices.
For example:
• Some investors entered silver on January 29, 2026 when the price was $120.
• On January 30, 2026, silver fell by 37%.
Investors who cannot track global factors like the US dollar movement, the Federal Reserve’s stance, or international market conditions may be better off using Multi Asset Funds, which invest across equity, debt, gold, silver, and more.
The gap between fund return and investor return
Most people believe their returns depend mainly on markets, asset selection, or the economy. But research shows that your own behaviour has the biggest impact on long term results. Emotional decisions like panic selling or chasing trends often cause investors to buy high and sell low. This creates a gap between:
• What the fund earned
• What the investor actually earned
Investor return is measured using XIRR, which calculates gains based on when you enter and exit the investment. Studies show that across the world, investors almost always earn less than the fund return because of poor timing.
Why staying invested matters
When emotions drive decisions, long-term wealth suffers. Markets often deliver strong returns over time, but investors miss out because they keep jumping in and out.
An internal study shows:
• An investor who stayed invested from 04-Sep-2001 to 31-Dec-2025 earned 17.33%.
• An investor who missed just the best 20 days earned only 11.06%.
This means:
• Staying invested turned ₹1 lakh into ₹48.77 lakh over 24.32 years.
• Missing 20 days resulted in only ₹12.82 lakh, a huge difference of ₹35.95 lakh.
How compounding works in your favour
Behavioural finance research shows that retail investors often react strongly to short term ups and downs. But wealth is built through decades of staying invested.
A well-known example is Warren Buffett:
• He became a millionaire at age 30
• He reached $1 billion at age 56
• 90% to 95% of his current wealth was built after age 65
Buffett says his wealth grew like a snowball, small at first, but massive over time, simply because it rolled for decades. During volatility, fear takes over. Right now, markets are facing geopolitical challenges. Fear often pushes investors to sell stocks or funds to avoid further losses. But history shows that those who stay invested or even add more during market dips end up doing better in the long run.
How to overcome emotional decisions
Understanding your own behaviour is the first step toward better investing.
To improve long term performance:
• Be disciplined
• Focus on long term goals
• Avoid emotional reactions
• Do not make impulsive buy/sell decisions during extreme market movements
By doing this, you can reduce the “behaviour gap” and benefit more from what markets naturally offer over time.
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PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 209 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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