The Illusion Of 'Best Performing Fund' | Kabira Speaks
A well-managed fund might falter temporarily but its long-term strategy could still play out strongly.
One of the most common investor hopes is "I want to invest in the best-performing fund". Understandable — but dangerous. Many so-called "experts" exploit this by promising to shift your money from "under-performers" to "current high flyers". It seems smart — but, in reality, it's a recipe for disappointment.
Why Chasing Yesterday's Winners Is Risky
Performance Is Cyclical & Short-Lived: Funds that are shining today may lag tomorrow as market dynamics shift. High returns often attract inflows, altering strategy and diluting future performance.
Costs & Taxes Erode Gains: Every switch incurs exit loads, transaction fees, and short‐term capital gains taxes. These reduce net returns.
Churning Destroys Compounding: Churning resets the compounding clock. Over time, this eats into returns far more than investors realise. Constant churning disrupts the compounding which is the real wealth builder.
Psychology Works Against Investors: Investors often buy high when returns are high and so is enthusiasm and sell low when returns are low and so is enthusiasm. Exactly the opposite of long-term success.
A Better, Sustainable Approach
Instead of asking "What was best?" ask "What’s right for my goals?"
Focus on Goals & Risk Tolerance: If your horizon is 10 years (e.g., for education or retirement), you need consistency and alignment — not flash-in-the-pan returns.
Diversify Smartly: Mix large-cap, flexi-cap, debt and other categories. Diversification cushions against sector or fund-specific downturns.
Use Asset Allocation as Your Anchor: A well-balanced portfolio across equities, debt and hybrid schemes diversifies across market conditions, reducing the volatility of fund chasing.
Trust Process Over Prediction: A disciplined, goal-based and regularly rebalanced strategy helps. It sustains compounding and lowers risk.
Simple Analogy
Think of mutual fund managers like cricketers. One may score centuries in a series but slump in the next. Should he be benched instantly? No. If he has strong technique and temperament, you back him through rough patches. Similarly, a well-managed fund might falter temporarily but its long-term strategy could still play out strongly. Churning funds is akin to rotating the playing XI every match.
True wealth creation comes from:
Selecting funds aligned with your personal goals and risk profile.
Staying invested long enough for compounding to work in your favour.
Avoiding unnecessary churn and emotional decision-making.
Taking advise from a trustworthy and competent adviser, who doesn't promise best-performing funds but stays with the investors through ups and downs of the markets.
Next time someone promises to "always shift you into the best performing fund", remember: it's not wisdom being offered — it's a shortcut with hidden costs.
Don’t chase performance. Chase purpose.
Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
