Radhika Gupta, MD & CEO of Edelweiss Mutual Fund, used her social media platform X (formerly Twitter) to question the common practice of judging mutual fund performance based on 1-year returns. She argued that this short-term focus fosters unrealistic expectations and promotes a constant chase for the next top-performing fund.

“Incidentally, one thing direct platforms and media and our entire ecosystem can do to create better investors, longer holding periods, and a better shot at wealth creation… is stop the obsession with showing last 1-year returns. This statistic is very influential and not in a good way. It creates unrealistic expectations of returns and a perennial pointless search for the best performing fund.”

Link: https://x.com/iRadhikaGupta/status/1937720600123830713

In her tweet, she emphasized the importance of rolling returns and how they can lead to better investment decisions over time.

“For a long time we @EdelweissMF have had a campaign – Advice Zaroori Hai – because we believe handholding is necessary in anyone’s financial journey. This data proves why – yet again,” Gupta added.

Gupta’s tweet resonated with the importance of educating investors on the significance of looking at long-term metrics instead of getting caught up in short-term performance. Gupta’s call to action is directed at direct platforms and media, urging them to create better investors by promoting longer holding periods and a better approach to wealth creation.In her tweet, Gupta stresses that it is essential for platforms to educate investors about rolling returns and long-term strategies. She believes that if customers have to sort funds, the sorting should be done based on 5-year rolling returns, instead of focusing on the more transient 1-year returns.

Gupta stated that Edelweiss’s campaign, “Advice Zaroori Hai”, has always centered around the belief that hand holding in an investor’s journey is critical. This belief aligns with the call for investors to understand the broader performance of a mutual fund, particularly through rolling returns. Rolling returns measure the performance of a fund over a consistent period, smoothing out fluctuations that may happen due to short-term volatility.

This was followed by another tweet from Gupta, which included a visual illustration of the Edelweiss Mid Cap Fund’s 5-year rolling returns, where the data clearly showcases the fund’s long-term performance metrics and resilience.

Link: https://x.com/iRadhikaGupta/status/1937722862393020504

Rolling returns not only give a more realistic view of a fund’s performance but also allow investors to see how the fund has weathered different market conditions.

She emphasized a crucial factor in making better investment decisions—moving beyond the conventional obsession with the short-term 1-year returns. She posed a question to her followers:

“What leads to better decision making?

A. Last 1-year returns of this fund

B. The rolling returns data below”

(Source: X, Radhika Gupta)

The data highlights that despite a few instances of negative returns, the fund has consistently delivered positive returns for the majority of the time. Notably, 91.14% of the time, the returns have exceeded 7%, proving the fund’s potential for long-term growth.

Radhika Gupta’s call to stop obsessing over 1-year returns is a reminder for investors to take a more measured and long-term approach to wealth creation. As she points out, understanding rolling returns is key to fostering a mindset that leads to better decision-making and more sustainable investment practices.

Educating investors to shift their focus from short-term metrics to longer-term strategies is essential for building a more informed and effective investment community.

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