Why 3 years return in mutual funds is higher than 5 year returns?

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?

Hello Trader,

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.

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