Last Year’s Winner Is Not Always Tomorrow’s Wealth Creator

Every time Mutual Fund returns tables appear in newspapers or apps, one question immediately follows: Which fund gave the highest return? Many investors instinctively move toward the number one fund in the list. The logic feels simple. If a fund delivered 35 per cent while others earned around 18 to 20 per cent, choosing the winner appears obvious. Yet markets rarely reward decisions based only on past performance.

A Common Investor Story

Consider two investors. Rohit studies a one-year ranking and invests in the top performing midcap fund that generated about 40 per cent returns. Meera instead chooses a fund that delivered around 22 per cent but has shown consistent performance across five years and smoother declines during corrections.

A few months later, markets fall. Rohit’s fund declines sharply because it held aggressive momentum stocks. Meera’s fund also falls, but the damage is limited. The same fund that looked unbeatable in rankings suddenly becomes difficult to hold. This situation occurs frequently because short term outperformance often comes from favourable market conditions rather than superior long-term investing.

When Market Cycles Change

A fund can top the chart simply because its investment style matched the market phase. Growth oriented portfolios do well in liquidity driven rallies. Value oriented portfolios do better during recoveries. When the market cycle changes, leadership changes too. The strategy that produced exceptional returns may struggle in the next phase.

Sometimes concentration plays a role. A fund may have been heavily invested in one booming sector such as capital goods or technology. When that sector slows, performance slows quickly. High returns often come with higher risk, and risk becomes visible only during corrections. Over time, performance usually moves closer to category averages, something investors rarely consider when chasing last year’s winner.

What Return Tables Do Not Show

Return rankings hide important details. They do not reveal how much volatility the fund experienced, how deep the declines were during weak markets, or whether returns were steady. Two funds may show similar long-term returns, but one could have compounded gradually while the other moved through sharp rises and falls. The investor experience in both cases is completely different.

Looking Beyond Performance

A better approach is to judge behaviour rather than just numbers. Investors should see whether the fund follows a clear strategy, how it performs in falling markets and whether the fund manager stays disciplined during euphoric rallies. Funds that avoid extreme positions may appear slow during bull markets, yet they often protect capital better and compound wealth more reliably across a full cycle.

The Behavioural Trap

There is also a psychological aspect. Investors who chase top performers frequently keep switching funds. They enter after strong returns and exit after underperformance. Over time this leads to buying high and selling low. The fund is not the real problem. Expectations are.

Final Thought

A top performing fund is not necessarily a poor fund, but it is not automatically the best fund. The best fund is the one that fits your risk tolerance, supports your goals and allows you to remain invested during uncertain periods. In investing, steady discipline matters more than short bursts of performance. Wealth is created not by selecting last year’s winner but by staying with a consistent strategy long enough for compounding to work.