Biggest wealth destroyer is not poor performance, but constant search for better returns, says Radhika Gupta

Radhika Gupta, Managing Director and CEO of Edelweiss Mutual Fund, asserts that the primary obstacle to wealth creation might not be inadequate investment performance, but rather the constant pursuit of superior returns. Gupta emphasizes that investors should remain focused on their original financial goals, such as generating a specific return percentage, ensuring comfortable retirement, and outpacing inflation.

She states that the biggest wealth destroyer is often not poor performance, but the continuous search for better performance. Gupta elaborates that most investors embark on their investment journey with a clear goal in mind - whether it's a certain return rate, a comfortable retirement, or achieving a financial milestone. However, as they compare their fund's returns with others, their expectations can shift.

When a competitor fund delivers higher returns, an investor might start questioning whether their current investment is adequate, leading them to prioritize outperforming other funds over achieving their financial objectives. Gupta warns that this phenomenon occurs when investors begin to equate their fund's performance to that of others, rather than focusing on its suitability for their individual financial goals.

This shift from absolute to relative performance can result in investors frequently shifting money between funds based on recent performance, without considering whether the fund's strategy, risk level, or portfolio align with their financial objectives. Gupta cautions against chasing high returns without evaluating the underlying investment strategy, risk level, or alignment with one's financial goals.

She advises investors to remember that performance is important, but consistently poor performance should not be disregarded. At the same time, extraordinary returns should prompt investors to consider the risks associated with such returns, which could be due to a favourable market cycle, specific sector exposure, or an investment style that may not remain effective in the future.

Gupta acknowledges that fund managers also face pressure to outperform their peers, which can lead to taking on more aggressive investment positions and increasing portfolio risks. The pursuit of higher returns can become self-reinforcing, with investors and fund managers reacting to recent winners, potentially increasing market volatility.

Gupta advocates for a more disciplined investment strategy focused on whether an investment approach can help investors achieve their financial objectives, rather than simply chasing the highest short-term returns. She recommends evaluating mutual funds based on factors such as investment strategy, risk, consistency, time horizon, and suitability within the investor's portfolio, rather than solely considering which fund delivered the highest return in the recent past.