You’ve probably done this. You told yourself, “I’ll settle for nothing less than 12% returns every year.” You weren’t gambling, you were being disciplined, or so you thought.
But soon, the markets didn’t cooperate. Your fund delivered 8%, and panic set in. You changed to riskier ones because you thought your 12% was waiting for you somewhere else. That’s when your anchor pulled you down.
You were simply trapped by your anchoring bias. where one number, one point of reference, takes over your whole decision-making process.
The Comfort of a Number
Anchoring feels safe. It gives you a sense of control in a world that’s basically chaos with a ticker tape. But the truth? That one number you cling to, like a 12% target return, comes from thin air. It is not based on risk-adjusted realities, market data, or economic cycles.
Many Indian investors fall for this psychological crutch. It’s why investors dump a large-cap mutual fund after one bad year or jump into mid-cap funds chasing that elusive 15%. It’s not strategy; its emotion dressed as discipline.
As Nifty 50 wobbles, and inflation eats into fixed-income returns, clinging to arbitrary numbers is like steering a car while staring at last year’s speedometer.
The Illusion of Control
Every few years, markets create the same illusion. A few strong years make investors believe they’ve found the secret formula. Large-caps soar, small-caps look unstoppable, and everyone feels like a genius.
Then the cycle turns. Suddenly, your “smart” fund lags. Returns dip. Fear replaces confidence. Redemption requests rise. The same investors who were boasting about “long-term vision” become short-term speculators overnight.
Anchoring to a fixed number doesn’t just hurt performance. It kills patience. It makes you abandon perfectly good investments for the illusion of certainty.
How a “Reasonable” Goal Quietly Destroys Returns
Let’s imagine a simple case.
You invest ₹10 lakh in a large-cap mutual fund, expecting a steady 12% return.
Year 1: You earn 15%.
Year 2: You earn 10%.
Year 3: The return drops to 6%.
Now you panic. You exit and move your money into a mid-cap fund that “recently delivered” 18%.
Year 4: That mid-cap fund crashes 14%.
At the end of four years, your original ₹10 lakh has grown to just ₹11.5 lakh instead of ₹13.4 lakh if you had stayed put (and assuming the large cap fund gave a 0% return in the 4th year).
That’s not bad luck. That’s bad psychology.
Your anchor, the 12% fantasy, made you chase performance that wasn’t sustainable. The loss wasn’t in the market. It was in your expectations.
What You Should Anchor To Instead
If you must anchor, anchor to the process, not performance.
- Anchor to realistic expectations. Equity returns are uneven. Some years will soar, others will disappoint. Expect a range, not a fixed number.
- Anchor to risk-adjusted returns. A 10% return with lower volatility often beats a 14% return that comes with wild swings. Understand what you’re tolerating for that extra percent.
- Anchor to time, not timing. Judge performance over five years, not five months. Short-term noise doesn’t define long-term success.
- Anchor to discipline. Stay invested through the cycle. Jumping between “hot” funds usually adds activity, not value.
- Anchor to diversification. Balance large-cap stability with selective mid- and small-cap exposure that fits your risk profile.
- Anchor to humility. The market doesn’t owe you 12%. It gives what it gives. The sooner you accept that, the better investor you become.
You Didn’t Lose to the Market. You Lost to Yourself.
Every investor loves to believe they’re rational. But the market doesn’t care what you believe. Anchoring bias is like staring at a lighthouse while the tide is pulling you out to sea. You think you’re safe because you’re “focused,” but you’re actually drifting further from shore.
The brutal truth? You hurt yourself. Your benchmark obsession costs you returns, peace, and perspective. You ditched good funds for the illusion of control. You didn’t lose to the market; you lost to your mind.
The Checklist: Break Free from the Anchor
Before your next investment decision, ask yourself:
- Am I reacting to returns or revisiting my goals?
- Is my expectation based on data or nostalgia?
- Have I compared this fund’s risk-adjusted return to others, not just its latest number?
- Am I measuring performance over a realistic horizon (5 years+)?
- Would I still make this decision if the fund underperformed next year?
If you can’t answer “yes” to at least three of these, step away from the “invest now” button. You’re not investing; you’re reacting.
Anchoring bias doesn’t just make you a worse investor. It makes you a blind one. The market will never align with your fantasy of smooth, predictable 12% growth. If you can let go of that one number and focus on discipline, process, and patience, you might finally achieve the returns you’ve been seeking.
Disclaimer: The purpose of this article is only to share behavioral insights, market data, and thought-provoking opinions. It is not investment advice. If you wish to invest, please consult a certified advisor. This article is strictly for educational purposes only.
Chinmayee P Kumar is a finance-focused content professional with a sharp eye for investor communication and storytelling. She specializes in simplifying complex investment topics across equity research, personal finance, and wealth management for a diverse audience from first-time investors to seasoned market participants.