It is said that invest in mutual fund for longer term to get higher returns but when we check the past performance of any mutual fund on internet, We find that its 3 year returns are the highest while 5 year returns are less. Why it is so?
Well we are speaking about time frame and returns in the mutual funds and let me you one thing. There is always a short term volatility and long term stability. Factors affecting good returns is more in the short timeframe than the longer timeframe. Because in 3 years we may have been in a bull or a bear market which will determine the returns. Hence returns can be fluctuating in a big time. If u consider above 5 year returns the market would have already digested the ups and downs and that return can be more like a reality than the shorter timeframe.
A fund with 15% returns CAGR for last 10 years is much better than a fund with 20 or 30% returns CAGR in less than 3 to 5 years. My advice is always consider the longer time frame to value a mutual fund.