Choosing mutual funds based on past returns? Only 21% of top performers stayed ahead
Only a small share of top-performing mutual funds retain their rankings. What does this mean for investors?
Representative Image: Only a small share of top-performing mutual funds retain their rankings. What does this mean for investors?
When choosing a mutual fund, one of the first things investors often check is its past returns. A scheme that has consistently ranked among the top performers over three or five years may seem like a good investment choice.
But does a fund that performed well in the past continue to outperform in the years ahead?
Historical data suggests that the chances are relatively low.
Only 21 percent of equity mutual funds ranked in the top quartile managed to retain that position over the subsequent five-year period, on average. For three-year periods, the corresponding figure was 26 percent, according to FundsIndia’s October 2026 Wealth Conversations report.
Also read: Choosing mutual funds based on past returns? Only 21% of top performers stayed ahead
In other words, roughly four out of five funds that ranked among the top 25 percent over a five-year period did not retain that position during the following five years.
FundsIndia Wealth conversion report October 2026
How often do top-performing funds stay ahead?
The analysis examined diversified equity mutual funds across categories including large-cap, mid-cap, small-cap, flexi-cap, multi-cap, ELSS, focused and value/contra funds.
Funds were ranked based on their returns over an initial three-year or five-year period. Their rankings were then examined over the next period of equal length to see how many remained among the top performers.
The findings show that performance persistence varied significantly across periods.
For instance, among funds that ranked in the top quartile between 2004 and 2008, only 7 percent maintained that position during 2009–2013. The proportion was even lower for funds that performed well during 2007–2011, with just 4 percent retaining their ranking over the following five years.
However, there were periods when more funds managed to stay ahead. Among those ranked in the top quartile during 2014–2018, nearly half, or 48 percent, retained their position during 2019–2023.
The three-year comparisons showed similar variations. None of the funds that ranked in the top quartile during 2005–2007 remained there during 2008–2010. In contrast, 66 percent of the top performers from 2012–2014 retained their position during 2015–2017.
Why do mutual fund rankings change?
A fund’s performance is influenced by the market environment and the investment strategy it follows. A scheme that performs particularly well during a rally in mid- and small-cap stocks may not necessarily maintain the same relative position when market leadership shifts towards large-cap stocks.
Changes in sector performance, portfolio positioning and investment styles can also affect how individual funds perform relative to their peers.
For example, small-cap indices outperformed large- and mid-cap indices in 2023 and 2024, while large-cap stocks led in 2025. Such changes in market leadership can influence the relative performance of equity mutual funds.
However, the historical analysis does not establish why individual funds gained or lost their positions.
Should investors stop looking at past returns?
Not necessarily. Past returns can help investors understand how a fund has performed, but relying solely on recent three-year or five-year returns may not be the best way to select a scheme.
Investors should also examine a fund’s performance across different market conditions, its consistency relative to its benchmark and category peers, and the risk taken to generate those returns.
It is also important to understand what falling out of the top quartile means. A fund that no longer ranks among the top 25 percent has not necessarily delivered negative or poor returns. It may simply have been outperformed by other schemes.
Additionally, the analysis covers multiple diversified equity fund categories, so changes in rankings can partly reflect differences in how various market segments performed.
For investors, the key takeaway is that a fund’s position on today’s top-return charts does not guarantee that it will remain a leader over the next three or five years. Looking beyond recent returns can help make fund selection more informed.
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