'Stop showing 1-year Mutual Fund performances': Why Edelweiss MF Chief Radhika Gupta isn't happy with return numbers

Edelweiss Mutual Fund Chief Executive Officer, Radhika Gupta, has urged media outlets and financial technology platforms to reconsider the prevalent practice of highlighting one-year performance metrics in their fund performance reports. Speaking at a Mutual Fund Summit, Gupta emphasized that these short-term statistics do a "greatest disservice to investors."

The Pitfalls of Short-Term Metrics

Gupta highlighted that investors often select funds based on short-term, point-to-point returns, which can lead to suboptimal investment decisions. She explained that focusing on such short-term performance metrics encourages a recency bias, where recent trends are overemphasized, potentially resulting in poor long-term investment outcomes.

Advocating for a Long-Term Perspective

To provide investors with a more reliable and accurate picture, Gupta advocated for the use of five-year rolling returns as a better measure of fund performance. "My request is to show 5-year rolling returns. Min, max, average. This shows the average customer experience over a long term which is what is relevant for investors," she said.

A Call for Industry-Wide Change

Gupta's appeal is not just for the benefit of individual investors but for the broader financial ecosystem. She believes that presenting rolling returns instead of trailing returns would lead to better decision-making for customers and improved outcomes for the industry as a whole. "Please consider my plea as an ecosystem. It will aid better decision making for customers and better outcomes for all of us," Gupta added.

Understanding Rolling Returns

For those unfamiliar with rolling returns, Edelweiss' Niranjan Avasthi explained that this metric provides a more comprehensive view by showing the range of returns a fund has delivered over specific periods, thus offering a clearer picture of long-term performance. Edelweiss Mutual Fund already provides rolling return data on its website product pages, underscoring the company's commitment to this more holistic approach to performance reporting.