Why you should not start SIP in a top-performing mutual fund (always)
Like cricket, the mutual fund market is also a great leveller. While in cricket, a top player or a team doesn’t always remain on top of his game, and on many occasions fails, in mutual funds also, top-performing schemes do not always remain the top-performer. The probability of maintaining the top position by a scheme over the long term is less, data shows.
No matter how good it feels to read about top-performing mutual fund schemes, starting a SIP in them on the basis of past performance alone is not always beneficial. You may end up inviting losses when you base your investment decision on the one, three or five-year returns of a fund.
According to an analysis of historical mutual funds data by FundsIndia, only one out of four top funds continue to remain at the top over the next three years. Also, only one out of five top schemes continues to stay on top over the next five years.
What this means, if you invest in a top-performing fund today, the chances of it remaining in the top position over the next three or five years cannot be predicted. This also means, for example, that a top-performing fund giving 30 per cent returns in three years, may not continue to maintain the same position and returns in future.
Also Read: Best mutual funds to invest now: How to find
The FundsIndia report found that the number one fund of 2017-19 is currently ranked 165. Interestingly, the fund ranked number one currently was ranked 113 during 2017-18.
As per the report, only 20% of funds that were in the top quartile during 2017-19 continued to remain in the top quartile during the subsequent three-year period between 2020-22. Also, only 7% of the funds that were in the top quartile during 2015-17 continued to remain in the top
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