You think of building long-term wealth. Mutual funds seem like an ideal option. But you need to find the right product. Before choosing a mutual fund for investment, you’ve probably Googled “top 5 mutual funds in India” and found a mutual fund that has given exceptional returns over the past few years. Convinced you’ve found a winner, you open your broker’s app and invest a lump sum, hoping to build long-term wealth.
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But this strategy can lead to disappointment.
Oh, but what could go wrong with something that’s already performing well? you ask.
Well, quite a lot, actually.
Far too often, decisions driven by ‘The Return-Chasing Epidemic’, an approach where people pick investments solely because they have delivered high returns end up costing investors dearly.
In this article, we’ll break down why relying on recent performance is a flawed strategy, and what a more robust, long-term investment approach should look like.
Past returns can be a terrible metric for future returns
A large number of investors have been affected by the recent return-chasing epidemic. Every month, nearly 15,000 people search for “top 5 mutual funds in India”, hoping to find the next big winner.
To get a clear understanding on just how unreliable past performance can be, 1 Finance Magazine studied the behavior of direct equity mutual funds over an entire decade, 2015 to 2025. Direct mutual funds are funds which you directly buy from asset management companies and equity mutual funds means funds that are primarily invested in equity stocks of listed companies.
We curated top 10 mutual funds over a period of time and compared its ranking, the outcome should be a reality check for return chasers –
| 2015–2018 | 2018–2021 | 2016–2019 | 2019–2021 | 2017–2020 | 2020–2023 | 2018–2021 | 2021–2024 | 2019–2022 | 2022–2025 |
|---|---|---|---|---|---|---|---|---|---|
| 1 | 58 | 1 | 230 | 1 | 256 | 1 | 181 | 1 | 311 |
| 2 | 198 | 2 | 219 | 2 | 242 | 2 | 219 | 2 | 305 |
| 3 | 113 | 113 | 216 | 216 | 42 | 3 | 206 | 3 | 310 |
| 4 | 179 | 179 | 221 | 221 | 251 | 4 | 186 | 4 | 127 |
| 5 | 205 | 205 | 165 | 165 | 60 | 5 | 274 | 5 | 281 |
| 6 | 185 | 185 | 226 | 226 | 257 | 6 | 266 | 6 | 76 |
| 7 | 177 | 177 | 228 | 228 | 31 | 7 | 154 | 7 | 241 |
| 8 | 152 | 152 | 231 | 231 | 136 | 8 | 142 | 8 | 265 |
| 9 | 177 | 177 | 56 | 56 | 172 | 9 | 142 | 9 | 270 |
| 10 | 208 | 208 | 56 | 56 | 21 | 10 | 143 | 10 | 270 |
Here’s what was found
Short-term winners rarely remain on top
Across five different three-year windows, there wasn’t a single mutual fund that managed to stay in the top 10 list from one period to the next. Not one. The leaders vanished as quickly as they appeared.
For example, the fund ranked no. 1 in 2015–2018 dropped to 58th in 2018–2021, and further declines are visible in other cohorts, e.g., the mutual fund that ranked 1st in 2017–2020 was 256th in 2020–2023.
Major declines are common in top mutual funds
Many top 10 funds in the initial period are ranked 50–300+ in the subsequent period. Even their basic survival in the upper ranks was weak. Only 20% to 40% of these top performers even stayed in the top 100 during the next cycle.
Take 2015 to 2018, for example. The best-performing mutual fund from that period fell to 58th place in the next three years. The second-best one crashed to 198.
Consistency is rare when it comes to top mutual funds list
This volatility persists across all the overlapping three-year windows. For instance, among funds ranked in the top 10 in 2019–2022, their 2022–2025 ranks are 40, 76, 127, 241, 265, 270, 281, 305, 310, 311—none stayed in the top 10, and only two remained in the top 100.
What this means
Past performance does not guarantee future returns. We can conclude by saying that reliance on recent performance is risky. Investors who pick funds based on short-term outperformance are likely to be disappointed in subsequent periods, as demonstrated by these consistent declines across several rolling three-year intervals.
Why performance doesn’t persist
Understanding why this happens requires recognising what mutual funds actually are: baskets of stocks from various sectors and industries. When a particular sector experiences a boom, funds heavily invested in that sector appear to be top performers. However, when market conditions shift, these same funds often struggle. Take for example Nifty Media Index
The index experienced a surge of 95% over 4 years, climbing from around 2,000 at the start of 2014 to nearly 4,000 by early 2018. After its 2018 peak, the index fell by roughly 47.5% over the next 7 years, dropping to near its 2014 levels by mid-2025. Despite dramatic ups and downs, the Nifty Media Index returns to nearly the same level as it started.
The path forward
Chasing returns based on recent performance is a proven way to disappointment. While 15,000 people may search for “top performing funds” money, the investor looking to build long term wealth should stay patient and disciplined rather than chasing yesterday’s winners and adopt a holistic investment mindset:
- Look at fund house reputation, fund manager track record, portfolio strategy, risk-adjusted returns, and expense ratio.
- Choose funds that have performed steadily across market cycles, not just in short-term bull phases.
- Connect with a financial advisor who can assess your risk profile, time horizon, and financial goals to recommend the right mix of funds.
You can check out 1 Finance’s scoring and ranking model for evaluating mutual fund on basis of various parameters but remember a Qualified Financial Advisor will you find the best fit.
