Published Jun 27, 2026 4 Min Read

Copy Link

Introduction

Recency bias in investing happens when you assume that recent market performance will continue in the future. This behavioural bias can make you chase returns, ignore long-term goals, and make emotional investment decisions.

  • Definition: Recency bias causes you to give more weight to recent events than long-term historical data.
  • Common outcome: Investors often move money into funds that have recently delivered strong returns.
  • Risk: Chasing returns may result in buying investments after they have already risen significantly.
  • Investment modes: You can invest through SIP or lumpsum, both available for most mutual fund schemes.
  • Accessibility: SIP investments start from Rs. 100 per month.
  • Choice: The Bajaj Broking website offers 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic funds, and NFOs.

You can start investing after completing mandatory KYC, compare fund categories, and track your investments through Dashboard, Portfolio, Orders, and MF Profile tools available on the Bajaj Broking website.

What is recency bias?

Recency bias is a behavioural bias that makes you believe that recent events are more important than older information. In investing, this means you may assume that a fund, stock, or market trend that performed well recently will continue to perform well in the future.

This bias is also known as the recency effect. It can influence your decisions even when long-term data suggests a different outcome.

Recency bias example

Suppose a mutual fund has delivered strong returns over the last 12 months. Because of recency bias, you may invest in the fund solely based on recent performance while ignoring factors such as risk level, investment strategy, and long-term consistency.

Past performance does not guarantee future returns. Mutual fund returns remain market-linked.

How does recency bias influence investment decisions?

Recency bias investing often leads to emotional decisions instead of objective analysis. You may focus only on what happened recently and overlook broader market cycles.

Some common signs include:

  • Investing in funds after a strong rally
  • Selling investments after a short-term market fall
  • Ignoring long-term investment goals
  • Frequently changing your portfolio based on recent news
  • Assuming current trends will continue indefinitely

Markets move through different cycles. What performed well recently may not always outperform in the future.

Impact on risk assessment

Recency bias can also affect how you view risk. During a market rally, you may underestimate risk. During a market downturn, you may overestimate risk.

When evaluating mutual funds, always review the SEBI-mandated riskometer, which classifies schemes as:

Riskometer LevelRisk Category
LowLower risk
Low to ModerateModerately low risk
ModerateMedium risk
Moderately HighHigher risk
HighHigh risk
Very HighVery high risk

How do you deal with recency bias?

You can reduce the impact of recency bias by following a structured investment process. The Bajaj Broking website provides tools that help you focus on long-term planning rather than short-term market movements.

Steps to avoid recency bias

  1. Define your financial goals before selecting any mutual fund scheme.
  2. Review at least 3 to 5 years of historical performance instead of focusing only on recent returns.
  3. Check the SEBI riskometer before making an investment decision.
  4. Compare fund categories such as equity, debt, hybrid, ELSS, and thematic funds.
  5. Invest through a SIP from Rs. 100 per month to encourage disciplined investing.
  6. Use the SIP Calculator available on bajajfinserv.in/investments/sip-calculator to estimate potential future corpus.
  7. Track your investments through Dashboard, Portfolio, Orders, and MF Profile tools.
  8. Review your portfolio periodically instead of reacting to daily market movements.

How does recency bias affect mutual fund investors?

Recency bias can have a significant impact on mutual fund investing because fund performance often changes across market cycles.

Investor BehaviourPossible Impact
Chasing recent top-performing fundsBuying at higher valuations
Selling after market declinesMissing potential recoveries
Ignoring diversificationHigher portfolio risk
Frequent portfolio switchingPoor long-term outcomes
Following market sentimentEmotional decision-making

A disciplined investment strategy can help you avoid these mistakes.

Why SIP investors should be careful

SIP is an investment method that allows you to invest fixed amounts regularly into a mutual fund scheme. Because SIPs are designed for long-term investing, stopping or changing them based on short-term market movements can reduce their effectiveness.

Maintaining consistency often helps investors benefit from different market cycles over time.

Conclusion

Recency bias is a common behavioural finance bias that causes you to place too much importance on recent events when making investment decisions. This can lead to chasing returns, reacting emotionally to market movements, and ignoring long-term goals.

A disciplined investment approach, proper diversification, and regular portfolio reviews can help reduce the impact of recency bias. Before investing, review fund objectives, risk levels, and long-term performance instead of relying only on recent trends. The Bajaj Broking website allows you to explore 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic categories, and NFOs, with SIP investments starting from Rs. 100 per month.

Frequently asked questions

What is recency bias?

Recency bias is a behavioural bias where you give greater importance to recent events than historical information. In investing, this can make you believe that a mutual fund or market trend will continue performing the same way simply because it has performed well recently. The Bajaj Broking website helps you compare different fund categories and evaluate investments using a broader perspective.

Why is recency bias dangerous for SIP investors?

Recency bias can cause you to stop, increase, or switch SIP investments based on short-term market movements. Since SIP investing is designed for long-term wealth creation, reacting to recent market performance may prevent you from benefiting from different market cycles and rupee cost averaging over time.

How can investors avoid recency bias?

You can avoid recency bias by focusing on long-term goals, reviewing historical performance, checking the SEBI riskometer, and maintaining a disciplined investment strategy. The Bajaj Broking website offers access to 4,000+ mutual fund schemes and tools such as a SIP Calculator to support informed decision-making.

Why is it important to be aware of recency bias?

Being aware of recency bias helps you make more balanced investment decisions. Instead of reacting to recent news or market movements, you can evaluate factors such as risk, diversification, investment objectives, and long-term performance. This approach supports more informed and goal-oriented investing decisions while remaining aligned with SEBI and AMFI guidelines.

Show More Show Less

Related Articles

Article 1

Trailing Returns vs Rolling Returns

Read More

 Article 2

Rolling Returns

Read More

 Article 3

Market Psychology

Read More

 Mutual Fund Theorem 4

Mutual Fund Theorem

Read More

Related Videos

10 key steps to secure your child's financial future
 
 

10 key steps to secure your child's financial future

How to invest in ELSS Funds?
 
 

How to invest in ELSS Funds?

Who regulates Mutual Funds in India?
 
 

Who regulates Mutual Funds in India?

Reinvest your Mutual Funds dividends for growth
 
 

Reinvest your Mutual Funds dividends for growth

Home > Investments > Mutual Funds > Recency Bias

Related Links

Bajaj Finance app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finance App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finance App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finance App today and experience the convenience of managing your finances on one app.

Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form.

(ii) carry customized/personalized suitability assessment.

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.

Download app image