A recent study by Lukas Schneider of fund performance in this country states that "In the period from 1992 to 2003 the average UK equity fund return was 6.93 per cent while the average UK equity-fund investor achieved an average annual return of 4.91 per cent - about two percentage points lower than the funds he was invested in."

Mr Schneider says that the explanation for this performance gap is that the fund figures assume that investors buy and hold the relevant funds for the entire time span studied. What investors actually do is move in and out of funds. When returns to investors are measured in a way that reflects this, known as an asset-weighted return, the figures are consistently lower than the stated fund returns.

Mr Schneider adds: "The picture is even worse when you consider that most UK equity funds do not match the performance of the FTSE all-share index, which beat fund returns by two percentage points over the period. So UK fund investor returns, taken as a whole, are four percentage points behind that of the FTSE All-share.

Investors could improve returns considerably simply by doing two things. First, by adopting a rigorous buy-and-hold strategy, and not moving in and out of funds. Secondly, by purchasing index funds which, over the long term, tend to produce better performance, with lower costs, than conventional equity funds." A summary of the results from this study is given below:

                                       UK: 1992-2003

Source: Lukas Schneider, An Examination of the Difference Between UK Fund Returns and UK Fund Investors’ Returns, July 2007.

A Similar Study was carried out by John Bogle in the US and his results were as follows:

                                     US: 1983-2003

Source: John C. Bogle, "The Mutual Fund Industry 60 Years Later: For Better or Worse," Financial Analysts Journal 61, no. 1 (2005): 15-24.