You don't have to invest in the 'top-performing' mutual fund

Summary: It’s tempting to think the top-performing fund is the one you should own. But in investing, the shiniest trophy can hide the sharpest edges. From hidden risks in “safe” funds to the costly trap of chasing winners, here are five reasons why picking the latest chart-topper could leave you poorer — and what to do instead. For many investors, the first instinct when choosing a mutual fund is to search for the “best performer”. It sounds logical. If a fund has topped the charts recently, surely it’s the one to own? The truth is, chasing the latest winner is one of the easiest ways to disappoint yourself in the long run. So, here’s why picking the “best” mutual fund, as defined by recent returns, may not always be the smartest move. 1. The best fund may not be the best for you Performance numbers tell you what a fund has done, but not how it got there. And the way a fund earns its returns can make a huge difference to your investing experience. Take large-cap funds, for example. By regulation, they can invest up to 20 per cent of their assets in the riskier mid- and small-cap segments. While, on average, large-cap funds are keeping only around 2-3 per cent i