Do Not Chase APR!!

I have seen people asking which funds to go with in Mutual Funds when they have invested for say 1 year because they are not getting the highest APR. They would like to switch to the ones that are giving the highest APR today. The problem which they are unaware of is that no funds can give the same return every year. There are a lot of factors to it, for example, new funds are always able to give good returns because they can experiment but once the fund becomes old and a lot of people invest in it, the returns dried out because of fewer experiments.

For example, a quick search with returns high to low has given me 5 mutual funds with the highest returns. Now if you look closely out of 5 there are 4 mutual funds with the fund house Quant.

PC: Groww.in

Now let's understand the difference between two fund houses, Quant and Axis, if you see below Axis Mutual Fund is close to 42X than Quant Mutual fund. Thus the quant can do an experiment as much as possible but it is not the case with Axis because they cannot do experiments with funds much.

PC: Groww.in

And this is the main reason why Quant is giving the highest in last 3 years because they have done a lot of experiments with the funds in these years. Thus a lot of investors are actually started investing with them and when more and more people will invest, their percentage will come down and they might not able to deliver the highest returns.

And this is the same reason why we should not chase APR. I am happy with my fund giving average returns because I do not have to run around rebalancing every 6 months after seeing the best fund. The quest to get the best funds never ends, but again if you are consistent with your investment plan you will get the desired results.

So actually we should not chase the APR, we should chase only how we can increase our investment and thus keep that investment invested in the market for say 15 years and then see the magic it brings in front of us.

Posted Using LeoFinance ^Beta