The Silent Wealth Killers: What Destroyed More Portfolios in 2025 Than Market Crashes

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Sandeep Gandhi CEO, Megafina CFPCM  [EasyDNNnews:PaidContentStart]

The Silent Wealth Killers: What Destroyed More Portfolios in 2025 Than Market Crashes 

Indian investors were euphoric at the start of 2025. The Sensex was at 78,507.41; SIP inflows hit record highs, and Mutual Fund AUM exceeded ₹80 lakh crore. Then portfolios started bleeding, the market fell nearly 10,000 points, and FIIs withdrew ₹1.5 lakh crore. The paradox is that wealth was not destroyed by the market, but by unseen behavioural traps working in the background. 

The Delusion of SIP Confidence

Retail investors felt unbeatable when Domestic Institutional Investors surpassed Foreign Institutional Investors for the first time in March 2025 (17.62 per cent versus 17.22 per cent). With ₹29,361 crore in September alone, the 52nd consecutive month of positive flows, SIP f lows broke previous records. The story was captivating: India had developed a self-sufficient investment ecosystem. What everyone missed was the creation of a risky feedback loop. ₹1.4 lakh crore, or 35 times FY20 flows, were drawn to sectoral and thematic funds. SIPs made speculation feel methodical, and investors were not purchasing undervalued companies; rather, they were doing so because everyone else was. Reality hit hard when the correction came. Equity Fund AUM decreased ₹3.7 lakh crore, or 11.92 per cent, despite net inflows of ₹18,797 crore between October 2024 and February 2025. Mark-to market losses were drowning fresh money. The SIP stoppage ratio reached 128.3 per cent by March 2025, meaning that there were more discontinuations than new starts.

The Narrative Addiction

Mid, small and Defence-focused funds produced returns for the last 2–3 years. Themes like Make in India, geopolitical tensions, and export growth dominated headlines. Defence evolved into a narrative rather than just an industry. And the story turned out to be accurate.

The error was in the way portfolios were constructed around the opportunity, not in identifying it. Investors discreetly gave up on the process as returns confirmed the narrative. Recent performance and group confidence were prioritised over asset allocation, risk profiling, and time horizons.
Though not as quickly as price movements suggested, fundamentals did improve. Order Books increased, but earnings visibility and valuation comfort lagged. Because momentum made the story seem inevitable, these risks were recognised but disregarded. Conservative investors with long-term objectives invested in sectoral defence funds with high volatility. Thematic risk intended only for tactical exposure was absorbed by retirement-focused portfolios. Young, aggressive investors, on the other hand, mistook conviction for diversification and invested 40–50 per cent in a single sector or category (mid or small cap). Wealth in 2025 was not harmed by a poor decision; rather, it was harmed by correct decisions executed incorrectly. This drove investors back to fundamentals at great expense. 

The Recency Bias Casino

Every small correction felt like a chance after Small-Cap returns of about 24 per cent in 2024. Investors frequently abandoned asset allocation, risk profiling, and goal horizons as they increased SIPs, and strongly favoured mid- and small-cap funds. By September 2024, the situation had changed. Mid- and small-cap indices had corrected 8–11 per cent. After a few months of patience on the part of investors, SIP stoppages and redemptions skyrocketed in January and February, with industry data showing SIP stop ratios rising. Paradoxically, discipline was most important at that time. Long-term participants were overlooked by equity investors. Human wiring, not a lack of intelligence, took over due to recency bias 

The FII Mirror Syndrome

Retail investors made it an identity issue when FIIs withdrew `13,302 crore in just two weeks. 'FIIs do not understand India's story.' 'DIIs will support the market.' While retail believed they were disproving FIIs, SIP flows continued to be strong. However, FIIs were rationally rebalancing rather than running away from India. The dollar gained value. US yields increased. The rupee lost value above `88. While retail continued to purchase what had proven successful at stretched multiples, FIIs rotated based on global arbitrage. Critical thinking stops when investing is linked to identity. Markets are more concerned with valuations than they are with proving points.

The 2026 Reality

As we enter 2026, markets trade just below peaks; valuations have compressed, SIPs remain robust above `29,000 crore monthly. Conditions exist for wealth creation, but the silent killers are not resting. New crowds will form around different narratives. Recency bias will operate on new patterns. Selective interpretation will enable comfortable delusions. The demand for certainty will keep capital sidelined during opportunity. Asset allocation has always been the key. Not chasing gold when it has already rallied 74 per cent. Not loading up on a single sector delivering exorbitant returns. The investors who built generational wealth were not the ones who caught every rally. They were the ones who maintained allocations through every temptation, rebalanced mechanically, and let compounding do its work over decades.

After 40 years watching wealth created and destroyed, I know this. Markets do not need crashes to destroy wealth. They just need investors to be human. The question is not whether 2026 presents opportunities. It will. The question is whether you will build systems that override your instincts, or trust intuition, follow crowds, chase narratives. It is in the mirror.

 

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