Selecting a Portfolio Management Service that has recently delivered the highest returns may appear logical. Strong recent performance indicates better investment decisions or superior research. 

This is one reason many investors searching for the Best PMS in India or reviewing lists of the top PMS in India tend to focus primarily on recent return rankings. 

However, both market experience and investment studies show that choosing strategies mainly based on recent outperformance can lead to unsatisfactory long-term results.

This risk arises from several factors, including statistical variations, investor behaviour, changing market conditions, and the inherent structure of PMS investments. 

For this reason, platforms such as PMS AIF WORLD place extreme emphasis on clarity of investment process and understanding of risk, since past performance alone cannot adequately indicate future outcomes.

The article ahead explains in detail why selecting a PMS solely based on recent top performance can involve certain risks.

Past Performance Rarely Continues in a Consistent Manner

One of the commonly discussed questions in investment analysis is whether strategies that perform well in one period continue to perform similarly in the future. Available evidence indicates that such consistency is limited.

Investment performance is influenced by several factors, including:

  • market cycles
  • sector leadership changes
  • starting valuations
  • macroeconomic conditions
  • liquidity in financial markets

A strategy that performs well under a particular set of market conditions may not deliver the same results when those conditions change. Since PMS portfolios are generally more concentrated, changes in the market environment can have a relatively greater impact on overall performance.

So, by the time a PMS is recognised among the top performers or becomes part of discussions around the top 10 PMS in India for the long term, the market conditions that contributed to that performance may already be in the process of changing.

Regression to the Mean

In financial markets, periods of exceptionally high performance are often followed by more moderate results. This tendency is known as regression to the mean.

Outperformance may occur due to:

  • favourable sector trends
  • higher risk-taking
  • concentrated investments that performed well
  • favourable timing

When these factors normalise, returns often move closer to average levels. Investors who enter after a strong performance phase may therefore experience lower future returns.

This situation is commonly observed in PMS strategies that rely on concentrated portfolios or exposure to specific market segments, such as small-cap or thematic investments. Evaluating PMS services only on recent returns may therefore lead to incorrect expectations about future performance.

Behavioural Biases Influence Investment Decisions

Investor psychology plays an important role in performance chasing.

Recency bias

Investors often give more importance to recent performance than to long-term evidence. This tendency, known as recency bias, leads investors to assume that recent winners will continue to perform well in the future.

In practice, this may result in:

  • Investing after a strong market rally
  • exiting strategies after temporary underperformance
  • frequently changing investments based on rankings

Such behaviour can reduce long-term investment outcomes because decisions are influenced by short-term performance rather than long-term suitability.

Return-chasing behaviour

Investment studies show that investors often allocate more money to strategies that have recently performed well. 

However, strong past performance does not necessarily indicate similar future outcomes. This behaviour may lead investors to enter investments at higher valuations and exit during weaker periods.

This is why investors evaluating the Best PMS in India on PMS AIF WORLD need to consider process transparency and consistency alongside performance data.

High Returns May Reflect Higher Risk

Top-performing PMS strategies may achieve higher returns by taking higher levels of risk.

During rising markets, this risk may not be clearly visible because:

  • Market corrections may not have occurred
  • Concentrated positions may continue to rise
  • Downside protection remains untested

When market conditions change, such strategies may experience sharper declines. Investors who focus only on return figures may overlook the level of risk involved in generating those returns.

Advisory platforms such as PMS AIF WORLD often highlight downside behaviour and drawdown analysis for this reason, as risk becomes visible only across full market cycles.

Performance Rankings Are Based on Past Data

Performance rankings are based on historical results, whereas investment decisions relate to the future.

By the time a PMS becomes widely recognised as a top performer:

  • Significant investor inflows may occur
  • Portfolio size may increase
  • Attractive investment opportunities may reduce
  • Valuations in successful sectors may already be high

As more capital enters successful strategies, the ability to generate excess returns may reduce over time. Investors reviewing lists of top PMS in India, therefore, benefit from understanding how scalable and repeatable the strategy is, rather than relying solely on rankings.

The Real Risk: Misalignment Between Investor Behaviour and Market Cycles

The main risk does not lie in the PMS itself. 

Many top-performing strategies are managed by experienced investment teams. The risk arises when investors enter after strong performance and exit after periods of underperformance.

Over time, this behaviour can result in investor returns being lower than the actual performance of the PMS strategy. 

Therefore, informed investors rely on research-oriented platforms such as PMS AIF WORLD to understand strategy suitability rather than relying only on recent rankings.

Wrapping Up

Instead of selecting strategies based on recent performance, evaluation may focus on consistency across different market conditions, the ability to manage downside risk, clarity and discipline in the investment process, risk-adjusted returns, and portfolio construction approach.

Because long-term investment outcomes are generally influenced more by process consistency than by selecting recent top performers.