You saw the glowing headlines.
“Top Performer of the Year.”
“Fund Manager of the Decade.”
“Consistent Outperformer.”
You scrolled through reviews, watched a few YouTube videos, and saw happy investors showing off rising NAVs. You felt confident. You thought you had picked a winner.
Then you stopped reading. You ignored the articles that questioned the fund’s high expense ratio, its one-dimensional strategy, or its poor record in sideways markets. You didn’t compare its long-term numbers with peers. You told yourself, “If everyone says it’s good, it must be.”
That’s how confirmation bias works. You look for information that agrees with what you already believe. You ignore what challenges it. It is one of the most dangerous traps in investing because it makes you feel smart right before you make a costly mistake.
When the Numbers Finally Spoke
Let’s talk about what the numbers actually say.
According to the SPIVA India Mid-Year 2025 Scorecard, nearly 73 percent of actively managed large-cap equity funds underperformed their benchmarks over the past decade. The number rises to 82 percent for mid and small-cap funds.
That means most investors who thought they were “beating the market” were actually paying higher fees to underperform it. If you chased the latest “hot” mutual fund from media buzz or ads, you likely bought at the peak of a performance cycle, not at the beginning.
The Raj Story You Refused to Learn From
Let’s bring this down to one investor. Raj. He’s not real, but his mistakes are.
Raj saw a mid-cap fund everyone was raving about. It had doubled investor money in three years. The fund manager was doing interviews. Business channels called him a “star.” Blogs praised his “risk-managed strategy.” Raj didn’t want to miss out.
He read the good stuff, ignored the cautionary notes, and invested half his savings. What he missed was that the fund’s stellar returns came mostly from a roaring bull market. The expense ratio was higher than average. Its portfolio was concentrated in a few overvalued mid-cap stocks.
The next year, when markets cooled, those same holdings dragged performance down. Peer funds with broader diversification and lower fees did better. Raj’s “winner” turned into a laggard.
When he looked back, every warning sign was there. He just chose not to read it.
How You Fall Into the Same Trap
You might think you’re being rational. But here’s how the bias sneaks in, quietly and predictably:
- Selective reading: You focus on whatever supports your decision. Anything that questions it feels uncomfortable, so you skip it.
- Echo chamber effect: You follow the same blogs, watch the same videos, and listen to the same voices that all repeat what you already believe. It seems like a study, but it’s actually just the confirmation of your assumptions.
- Overconfidence: Continuous positive reinforcement gets you to the point where you think you have discovered something unique. You no longer check the data again since it seems so obvious.
- Ignoring contrarian voices: On the occasion that somebody raises the issue of high expenses, inadequate downside coverage, or changes in the strategy, you come up with a reason to reject it. You tell yourself, “They just don’t see the full picture.
- ”No “what if I’m wrong” test: You never slow down to ask the simplest, most powerful question. What if this decision is a mistake?
That’s confirmation bias at work. It doesn’t care how informed or careful you think you are. It just waits for you to choose comfort over truth.
Why Indian Investors Are Especially Vulnerable
India’s mutual fund market thrives on narratives. Fund houses know that investors respond to stories more than spreadsheets. That is why new fund offers launch with slick campaigns and catchy themes. “India Growth Fund.” “Tech Leaders Fund.” “Future Stars Portfolio.”
You buy the story, not the structure.
But the reality is this: India’s fund ecosystem has matured, competition is fierce, and consistent alpha is rare. SPIVA India 2025 data makes that painfully clear. For most categories, a majority of active funds fail to beat their benchmarks after costs.
Then there is the fee problem. Indian equity mutual funds still charge higher expense ratios than their counterparts in developed markets. Even within India, many retail investors don’t realize how a one percent fee difference eats into returns over a decade.
If your fund earns 12 percent a year before fees and you pay 2 percent in costs while another investor pays 1 percent, the difference over ten years can be more than 1.5 lakh on a 10 lakh investment. Yet few investors check this number before investing.
The Hard Reality: You Don’t Do Your Homework
You read marketing brochures, not fund fact sheets. You trust YouTube reviews more than risk disclosures. You chase one-year returns but forget to check five-year consistency.
Ask yourself these questions before you buy another fund:
- Have you compared the fund’s rolling three-year returns with its benchmark?
- Do you know its expense ratio relative to peers?
- Do you understand what sectors dominate its portfolio?
- Have you checked how it performed during past market corrections?
- Are you tracking if the same fund manager still runs it?
If your answer to any of these is no, you are guessing, not investing.
How to Break Out of the Confirmation Trap
You can’t get rid of bias, but you can reduce its negative effects. Start with these steps:
- Force yourself to read criticism
Every time you find a glowing review of a fund, look for one that questions it. Read both. The truth lies in the discomfort you avoid.
- Compare performance the right way
Always look at returns net of costs and versus a suitable benchmark. If your fund’s five-year return is 14 percent and the benchmark earned 15 percent, you lost, no matter what the brochure claims.
- Watch for peer trends
Use credible sources such as Screener or TijoriFinance to see how similar funds performed. Sometimes a “top performer” is only average once you adjust for fees.
- Check fund manager consistency
A change in fund manager can alter strategy, risk level, and return profile. Many investors ignore this until the results show up months later.
- Create your personal rulebook
Create an investment checklist like this:
- Expense Ratio: Less than 1 percent
- Five-Year Peer Ranking: In the top quartile
- Manager Experience: More than five years
- Single Stock Weight: No stock over 7 percent
If a fund doesn’t meet these criteria, move on. This is a personal decision. Develop a rulebook that fits your goals and risk tolerance.
- Review annually.
Your job does not end with the investment. Review each year to see if the fund still meets your original criteria. If you find yourself ignoring negative reviews again, that is your bias resurfacing.
The Real Cost of Your Comfort Zone
When you refuse to challenge your own assumptions, the market does it for you. And the market never does it gently.
This doesn’t happen because you think you are unlucky when choosing the right fund. You lose because you cling to comforting stories and avoid uncomfortable facts. You want reassurance, not reality.
If you believe your fund is special because it made money last year, remember this: last year’s market, conditions, and leadership may never return. A good fund manager adapts. A biased investor does not.
The Indian market in 2025 is different from 2018 or 2021. Sector rotations, foreign flows, and domestic liquidity cycles change the game constantly. If you are not actively questioning what you believe, you are falling behind those who are.
Ignoring the Obvious
Look at how many investors flocked to small-cap funds in 2023 and 2024 when returns were strong. The headlines were euphoric. People forgot that valuations were stretched, and fund houses quietly started restricting inflows.
By mid-2025, as small-caps corrected, those same investors saw double-digit losses while benchmarks stayed flat. The information was always there. Analysts warned about overheated valuations. Fund houses themselves issued caution notes. But confirmation bias drowned out the noise.
You probably told yourself, “It will bounce back.” That’s not a plan. That’s denial.
The truth is simple: if you only read what supports your belief, you are your own biggest financial risk.
When a fund looks too good to question, that’s when you must question it most. When a friend says, “Everyone is buying this,” that’s when you should check the benchmark first. When you feel proud of a “smart” pick, pause and ask, “What could I be missing?”
It is not your intelligence that keeps you safe in markets. It is your ability to doubt yourself at the right time.
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.
