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Introduction
Ever searched for a fund that only supports your beliefs? That’s confirmation bias — a powerful mental shortcut where investors look for information that confirms what they already believe while ignoring contradictory data.
While it feels reassuring, it often leads to poor fund choices and underperformance. In this blog, we explain how confirmation bias creeps into mutual fund investing and show how it affected an investor like Priya.12/06/2025
Confirmation bias happens when investors:
· Focus only on fund reviews or returns that align with their opinions
· Dismiss warning signs like high expense ratios or volatility
· Avoid diversified thinking in favour of what feels familiar
This often results in chasing “popular” funds or sticking to “safe” options even if they’re underperforming.
Real-Life Example: Priya’s Fund Trap
Priya, a first-time investor, believed that large-cap funds are always the safest. She only searched articles that supported her view and ignored insights about flexi-cap funds or multi-asset options.
She invested ₹5 lakhs in a well-known large-cap fund in 2021 based on selective YouTube reviews. But the fund underperformed due to market shifts, and her 2-year CAGR was just 6.8%.
Had she explored other options without bias, a diversified flexi-cap or hybrid fund might have returned 10%+ in the same period.
Key Takeaways
| Trait of Bias | Confirmation Bias Impact | Better Alternative |
|---|---|---|
| Research Approach | One-sided, selective data | Compare all types of funds |
| Decision Outcome | Overconfidence, poor fund selection | Balanced, fact-based decisions |
| Behavioural Pattern | “I knew it was the right fund!” | “Let me verify with real data” |
Conclusion
Mutual fund investing is not about proving yourself right — it’s about making the right choices. Avoiding confirmation bias opens the door to smarter, more diversified decisions.
Next time you pick a fund, ask yourself — am I choosing this because I want it to be right, or because it truly is? Review fund facts, not just opinions.
| Investor Type | Avg. Return (3–5 Yr CAGR) | Avg. Risk (Volatility) | Avg. Investor Behaviour |
|---|---|---|---|
| Confirmation Bias Victim | 6% – 8% | Medium to High | Selective reading, overconfidence, poor exits |
| Balanced Researcher | 9% – 11% | Medium | Diversified approach, fact-based choices |
| Trend Chaser | 5% – 7% | High | Chases hot funds, poor timing, quick exits |
Dr. Satish Vadapalli
Research Analyst
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