Are the 'top 10 mutual funds' rankings misleading you?

Summary: Do you pore over ‘best funds’ or ‘top 10 funds’ lists before investing in mutual funds? Here’s why they aren’t always reliable and how you should shortlist funds instead.

Type ‘top 10 high-return mutual funds in India’ into a search bar and the results look reassuringly clear. Neatly ranked tables. Confident numbers. Usually based on one- or three-year returns. What those lists do not answer is a far more important question: do the same funds keep appearing year after year, or does the line-up keep changing with the market cycle?

In reality, most ‘top 10’ funds rotate out quickly. This is not an indictment of fund managers. It is simply how markets work. Fund performance moves in cycles, and rankings built on point-to-point returns can shift dramatically with small changes in the start or end date.

So before you treat the latest ‘top 10 high-return mutual funds in India’ list as a shortlist, it helps to step back and ask a different question: What does ‘best’ really mean when it comes to mutual funds? This story lays out a practical way to think about that distinction. Keep it in mind, and the rest of the analysis will make far more sense.

Why ‘top 10’ lists look stable but behave unpredictably

Most rankings are built on trailing returns. A trailing return, by definition, depends on two NAV (net asset value) points: the starting date NAV and the ending date NAV. Change either date and you often change the ranking. That is why even honest lists can mislead. They are not lying. They are incomplete.

This is also why investors feel whiplash. They buy last year’s ‘top’ fund, then watch it slide to the middle of the pack. The fund may not have become bad. The cycle may simply have moved on.

Three reasons why top performers rotate out

• Market cycles punish yesterday’s winners: A fund that outperforms in a momentum phase can struggle when the market shifts to value, or when leadership moves from large caps to mid and small caps, or the other way round. A ranking table rarely tells you which style or exposure generated the return.
• Many lists mix categories: This is a serious flaw. A small-cap fund and a flexi-cap fund can both be ‘equity funds’, but their risk behaviour is not comparable. When small caps are in favour, a mixed list will look like a small-cap list. When they are not, the list will reshuffle again. If you are not categorising first, you are not learning to compare the real performance of the funds; rather, you are comparing categories and witnessing category rotation.
• Consistency is rarer than headline returns suggest: Even strong funds go through long stretches where they look ordinary. This is precisely why Value Research stresses rolling returns as a more analytical way to measure performance than simple point-to-point numbers. Rolling returns use multiple overlapping periods, rather than a single start and end date.

The right test is not ‘top 10’. It is repeatability.

If your question still remains, “Do the top funds stay on top?”, your framework should shift from ranking to repeatability.

Below is a simple approach you should follow:

• Fix the universe: Compare funds only within the same category and plan type.
• Replace trailing returns with rolling returns: Look for performance that holds up across many overlapping periods.
• Add a risk lens: Returns without drawdowns, volatility context and portfolio behaviour are not a complete story.

Value Research offers point-to-point return views for funds, which are useful as a starting snapshot. The key is to treat that snapshot as a first step, not the verdict.

What to look for when a fund drops out of the top 10

When a fund falls out of a ‘top 10 high-return mutual funds in India’ list, most investors assume something has broken. Often, nothing has.

Here is what you should ask instead:

Has the fund changed its behaviour? This is about portfolio tilt, turnover, concentration and whether the fund still resembles what it was when it outperformed. The point is not to obsess over daily noise but to connect fund behaviour to outcomes. That is the difference between reading returns and reading a fund.

Or has the market changed the rules of the game? A fund can execute well and still lag if the segment it favours is out of flavour. A ‘top 10’ table does not tell you whether a fund underperformed because it took extra risk that did not pay off, or because it stayed disciplined while the market rewarded a different style.

Rolling returns help you separate these two stories because they show how often a fund delivered strong outcomes across many windows, not just one.

A cleaner way to answer the original query in one line

So, do the top funds always stay on top?

If ‘top’ means ‘top 10 by last one-year return’, the answer is usually no. That list is dominated by what worked recently, and what worked recently often changes.

If ‘top’ means ‘funds that repeatedly deliver strong outcomes across cycles’, the answer can be closer to yes, but only after you test consistency properly using rolling returns, category discipline and risk behaviour.

What readers should do instead of list-chasing

Most investors do not need a new fund every year. They need a repeatable way to evaluate what they already own and what they are considering next.

Do not treat a ‘top 10’ list as a shopping list. Treat it as a screening input. Then, validate it with rolling returns, peer comparisons within the category and a clear view of risk.

Moreover, picking a list of funds to invest in shouldn’t merely come from lists across news platforms or websites. Here is what you should consider instead:

• Your risk appetite: Can you stomach the market’s ups and downs without panicking? Or do you want comparatively lower but stable returns? This can help you better decide whether you are an aggressive or a conservative investor.
• Your financial goals: Why are you investing in the first place? Do you want to use your investments to buy a car, land, house, fund your child’s education or wedding? Or do you want to invest for retirement? Once you have outlined your goals, you can then shortlist the funds that will help you achieve them.
• Your time horizon: How long do you want to invest for? Is it 2-3 years or more (at least 5-10 years)?
• Long-term performance: Don’t merely fall for a fund’s one-year performance. Look at how it has delivered in the long term (three years, five years, 10 years) before investing. Compare it with its benchmark to assess whether it has outperformed or underperformed in the past.

Lastly, don’t forget to consider a fund’s key metrics such as expense ratio, rating, risk, AUM (assets under management), lock-in period (if any) and so on.

How to find which mutual funds are right for you?

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Disclaimer: This article is for informational and educational purposes only. It does not recommend any mutual fund or provide personalised investment advice. Mutual fund returns can be volatile and past performance may not persist. Consider your risk tolerance, time horizon and diversification before investing.

Also read: Best mutual funds