Why Investors Should Stop Chasing Best-Performing Funds: A Two-Cycle SIP Reality Check

 Every market cycle creates a new set of “top-performing” mutual funds. And almost every cycle, investors repeat the same mistake — they rush to invest in funds that have delivered the highest recent returns.

But real wealth creation doesn't come from chasing past winners.
It comes from staying invested across cycles and maintaining a disciplined, diversified approach.

To understand this better, let’s look at the performance of the same four funds across two consecutive 5-year SIP cycles.

📌 Cycle 1: SIP Performance (2015–2020)

SIP Amount per fund: ₹50,000 per month
Total SIP over 5 years per fund: ₹30,00,000
Total portfolio SIP: ₹1,20,00,000

During this period, equity markets went through a muted patch. As a result, these funds delivered only modest returns:

FundSIP InvestedSIP Ending ValueTotal ProfitXIRR
HDFC Focused Fund₹30,00,000₹31,18,509₹1,18,5091.52%
HDFC Mid Cap Fund₹30,00,000₹36,13,401₹6,13,4017.36%
Motilal Oswal Midcap Fund₹30,00,000₹33,75,321₹3,75,3214.65%
Nippon India Small Cap Fund₹30,00,000₹37,49,889₹7,49,8898.84%

Total SIP Invested: ₹1.20 crore
Portfolio Ending Value: ₹1.38 crore
Portfolio XIRR: 5.68%

Many investors looked at these unimpressive numbers and assumed these funds were not good enough, leading to unnecessary redemptions or switches.

📌 Cycle 2: SAME Funds, Dramatically Different Results (2020–2025)

SIP Amount per fund: ₹50,000 per month
Total SIP over 5 years per fund: ₹30,00,000
Total portfolio SIP: ₹1,20,00,000

The subsequent cycle saw a completely different market environment — strong recovery, broad-based growth, and high mid-cap/small-cap participation.
This time, the very same funds delivered exceptional performance:

FundSIP InvestedSIP Ending ValueTotal ProfitXIRR
HDFC Focused Fund₹30,00,000₹52,01,160₹22,01,16022.14%
HDFC Mid Cap Fund₹30,00,000₹54,51,579₹24,51,57924.09%
Motilal Oswal Midcap Fund₹30,00,000₹56,95,597₹26,95,59725.92%
Nippon India Small Cap Fund₹30,00,000₹51,54,981₹21,54,98121.77%

Total SIP Invested: ₹1.20 crore
Portfolio Ending Value: ₹2.15 crore
Portfolio XIRR: 23.51%

The difference between the two cycles is staggering.

🎯 What This Teaches Us About Investing

1. Past performance is NOT a predictor of future returns

Funds that performed poorly in one period became leaders in the next.
Conversely, current top performers may underperform in the following cycle.

2. Equity markets move in cycles

Each cycle favours different segments — large caps in one period, mid/small caps or global themes in another.
No single fund or category remains the “best performer” forever.

3. Chasing winners leads to poor decisions

Investors who exited these funds in 2020 out of frustration missed out on 23–26% annualized returns in the very next cycle.

4. The real power lies in disciplined SIPs

By staying invested consistently across cycles, investors benefit from:

  • Rupee-cost averaging

  • Market recoveries

  • Broad-based growth

  • Compounding

5. Diversified portfolios outperform emotions

A portfolio that spreads across categories, geographies, themes, and asset classes reduces dependence on one cycle or one segment.

📢 Key Takeaway

Don’t chase last year’s winners. Chase long-term wealth creation.
The right approach is not to identify the “best” fund but to stay committed through market cycles with a diversified portfolio that can weather every phase.

At Finvestments, we build portfolios that do exactly this — structured, diversified, and cycle-aware allocations designed to protect your downside while capturing long-term growth.

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