Recent returns are evidence—not the decision
Choosing a fund because it topped the recent return table is like boarding the busiest aircraft at the airport without first checking where it is going. There may be many good products. The investor’s destination determines which one is relevant.
Rational research can examine investment process, portfolio role, risk, return in context, consistency across cycles, portfolio characteristics, valuation or exposure where relevant, manager and process changes, and long-term evidence. Return chasing asks only which one recently returned the most. Those are not the same activity.
How the return-chasing cycle forms
Strong recent return
Attention and social proof
Higher expectations and purchase
Cycle changes, disappointment and switching
By the time an investment becomes widely discussed because of exceptional recent returns, a meaningful part of that outperformance has already happened. What happens next depends on the underlying investment, market cycle, valuations, risk and strategy—not on the trailing return ranking.
Return chasing changes expectations as well as holdings
Exceptional recent return can become expected return. Normal returns then feel disappointing, the risk behind the earlier result becomes less visible, temporary lagging performance becomes harder to tolerate, and the investor becomes vulnerable to the next popular product.
Return chasing does not only change what you buy. It can change what you expect.
A portfolio is not a collection of today’s winners
Different investments have different roles and may lead and lag at different points in market cycles. If every fund in a portfolio has to be the top performer at the same time, the investor does not really want a portfolio. They want a collection of today’s winners.
This is not an argument for retaining an unsuitable holding indefinitely. A product may need to change when its underlying role, investment thesis, suitability or portfolio requirement materially changes. That decision belongs to analysis, not a leaderboard — a portfolio review asks what each holding is there to do before asking whether it should be replaced.
What current evidence can—and cannot—show
S&P Dow Jones Indices’ U.S. Persistence Scorecard for year-end 2025 found substantial instability in performance leadership: only 0.46% of domestic equity funds remained in the top quartile for five consecutive years. This is U.S. evidence, not a direct finding about Indian mutual funds.
For India, the SPIVA India Year-End 2025 scorecard shows that active-fund outcomes vary materially by category and horizon; it is not a direct persistence study. The two datasets answer different questions and should not be combined into a claim that an Indian fund’s recent rank predicts its future rank.
Build the strategy before evaluating products
The higher-order decision—how purpose, maths, time, informed risk and portfolio structure become an investment strategy—belongs to Best Investment Strategy. Product evaluation belongs to Mutual Fund Investing.