Fund delivering as promised, but investor still unhappy? Edelweiss MF's Radhika Gupta explains the return-chasing trap

Investors often begin their mutual fund journey with a clear financial objective, such as building a retirement corpus or earning a certain return over the long term.

But according to Radhika Gupta, MD & CEO of Edelweiss Mutual Fund, investors can lose sight of those goals when they start comparing their returns with better-performing funds.

In a post on X, Gupta highlighted how an investor’s definition of “good enough” can change when a newer fund delivers higher returns.

What happens when a fund is already meeting your goal?

Gupta said most investors begin with an absolute goal. They may think, “I need 10% returns,” “I need to retire comfortably,” or “I need my money to beat inflation and grow.”

The problem begins when the investment delivers what was expected, but another fund starts performing better.

As Gupta put it, “The fund delivers what it promised. The goal is on track. But a newer, hotter fund appears. It made more.” At that point, investors may start questioning an investment that was previously working for them.

Why does return comparison change investor behaviour?

According to Gupta, this is when “what was good enough isn't good enough anymore.” The focus shifts from achieving an absolute financial objective to outperforming another investment.

She described this transition simply: “Absolute becomes relative. Money moves.”

For investors, this can mean moving money from an existing fund into a recent outperformer without considering whether the new investment carries a different level of risk, has a different strategy, or can sustain its recent performance.

Does chasing returns affect fund managers too?

Gupta argued that the pressure does not stop with investors. When money increasingly flows towards recent winners, fund managers can also feel compelled to keep pace.

“Fund managers feel pressure to keep up. Risks get stretched. Portfolios become more aggressive. Everyone chases the latest winner,” she wrote.

Is higher performance always better?

Gupta cautioned investors against viewing higher returns in isolation.

“The irony is that the investor's goal may not have changed at all. In investing, performance matters. Too little performance is a problem. But too much performance should also make you ask questions,” she noted.

She added, “Because in markets, there is rarely a free lunch. Extraordinary returns often come with extraordinary risks, sometimes visible, sometimes hidden.”

For investors, this means a fund’s recent return should ideally be evaluated alongside its risk, investment strategy, portfolio, and suitability for their financial objective.

What should investors focus on?

Gupta said the objective should not be to find a fund that wins consistently every year.

“The best investing is not about finding the fund that wins every year. It's about finding an approach that gets you where you need to go, and having the discipline to stay with it.”

She concluded with a broader warning about investor behaviour. “The biggest wealth destroyer is often not poor performance. It's the constant search for better performance.”

Her argument ultimately comes down to a distinction between achieving a financial goal and continuously trying to outperform. A fund that is meeting an investor’s objective may not suddenly become unsuitable simply because another fund has delivered higher returns.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.