Biggest wealth destroyer is not poor performance, but constant search for better returns, says Radhika Gupta

For investors, the biggest challenge in wealth creation may not always be finding an investment that delivers poor returns. It can be the tendency to constantly look for something that has performed better. Radhika Gupta, Managing Director and CEO, Edelweiss Mutual Fund, believes that repeatedly moving money in search of higher returns can make investors lose sight of the financial goals they originally started investing for.

Gupta on social media platform X said that, “Most investors start with an absolute goal. “I need 10% returns.” “I need to retire comfortably.” “I need my money to beat inflation and grow.”…………… The biggest wealth destroyer is often not poor performance. It’s the constant search for better performance. “

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Gupta said that most investors begin with an absolute goal: they need 10% return, want to retire comfortably and they may want their investments to generate a certain level of returns, beat inflation, build a retirement corpus or accumulate enough money for a specific financial milestone. However, once they start comparing their returns with those of other funds, their expectations can change.

According to Gupta, an investment that was earlier considered good enough can suddenly appear inadequate when a newer or hotter fund delivers higher returns. This can turn an investor’s focus from achieving a financial goal to beating other investments.
Gupta pointed out that the problem begins when absolute performance becomes relative performance. An investor may have a fund that is delivering the returns required to keep the financial goal on track. But if another fund generates significantly higher returns, the investor may feel the need to switch.
This can result in money moving from one fund to another simply because of recent performance. Investors may end up chasing the latest winner without considering whether the fund’s investment strategy, risk level or portfolio is suitable for their own financial goals.
The original goal, however, may not have changed. The amount required for retirement or another financial objective remains the same. What changes is the investor’s perception of what constitutes a satisfactory return.

Gupta believes investors should remember that performance matters, and consistently poor performance should not be ignored. At the same time, unusually high returns should also prompt investors to ask how those returns were generated.

Markets rarely offer a free lunch. Extraordinary returns can come with extraordinary risks, which may be visible through higher volatility or remain hidden until market conditions change.

A fund that has delivered exceptional returns over a particular period may have benefited from a favourable market cycle, a specific sector exposure or an investment style that may not continue to work in the future. Simply moving into such a fund after it has already generated strong returns can expose investors to the risk of entering at the wrong time.

The tendency to chase performance is not limited to investors. Gupta noted that fund managers can also face pressure to keep pace with better-performing peers.

When investors continuously compare funds based on short-term returns, fund managers may feel compelled to take more aggressive positions to remain competitive. This can increase portfolio risks and encourage a broader market tendency to chase recent winners. As a result, the pursuit of higher returns can become self-reinforcing, with investors and fund managers both responding to what has performed well recently.

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According to Gupta, the best investment strategy is not necessarily one that produces the highest return every year. Instead, investors should focus on whether their chosen investment approach can help them reach their financial objectives.

This means evaluating a mutual fund based on factors such as investment strategy, risk, consistency, time horizon and suitability for the portfolio rather than simply looking at which fund delivered the highest return in the recent past. Once an appropriate strategy has been identified, investors also need the discipline to stay invested through different market cycles.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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