It is a widely-acknowledged practice to invest in a mutual fund that has yielded good returns in the past believing it will do well in future as well. Why does everyone seem to be obsessed with past returns despite the disclaimer in the offer document of every fund saying clearly, ‘Past performance is no guarantee of future results’?
Studies show that many mutual funds with good past returns have yielded poor results in the future. There is no close correlation between high performing mutual funds in one period with high performing funds in the subsequent periods. Regardless of this fact, investors harp on past mutual fund returns while investing in the fund.
