Why one fund gives two investors two different results

It is a common conversation. Two friends hold the same scheme. One is happy with it. The other says it never worked for them. Both are telling the truth.

Here is a made up example, only to show the mechanics. Asha starts a SIP in a scheme and keeps it running through a rough patch. Ravi starts the same SIP on the same day, gets nervous when the value dips, stops for eight months, and restarts after the news turns cheerful.

They hold the same scheme, and the scheme did exactly what it did. Their results are still different, because Ravi missed the months when his money would have bought more units at lower prices. Nothing wrong with the scheme. The gap came from what each person did.

The four things that make the gap

When you started. The same scheme looks very different depending on the month you began. Starting just before a long fall feels terrible. Starting just before a long rise feels brilliant. Neither is skill.

How long you stayed. Short periods in the market are noisy. Longer ones tell you more. Someone who looked after one year and someone who looked after ten are not judging the same thing.

What you did in between. Stopping, restarting, switching, pulling money out for a holiday. Each one changes your result.

How much you put in. A scheme that gave the same percentage to a person investing a small amount and a person investing a large one gives very different rupee outcomes. People compare percentages and then feel confused about the rupees.

What to do with this

Be careful when comparing your result with a friend's. Ask when they started, what they put in, and whether they ever stopped. It rarely compares.

And before you judge a scheme as good or bad, ask whether it fits what you needed it for. A scheme that suits a ten year goal may disappoint in a two year one, and that is not the scheme's fault.

Mutual fund investments are subject to market risks. Past performance is not indicative of future returns.