Why Past Returns Should Not Be the Only Factor in Choosing an SEBI Registered Research Analyst or Advisor
When choosing an SEBI Registered Research Analyst or Investment Adviser, many people first check past returns. They may look at old stock recommendations, trading results, or profitable calls. If an analyst shows that a stock gave a 20% or 30% return, it can naturally create a good impression.
Checking past results is useful, but it should not be the only reason for choosing a service. The stock market keeps changing, and a stock or strategy that worked well before may not give the same result again. This is why it is better to look at the complete service instead of focusing only on old profits.
Past Returns Tell Only Part of the Story
Suppose an analyst recommended a stock at ₹100 and it later reached ₹120. That is a 20% return and clearly a good result. But one successful recommendation does not tell you how all the other recommendations performed.
For example, an analyst may have given 10 recommendations. Some may have made good profits, some may have made small profits, and some may have made losses. If you only see the best two or three calls, you do not get the full picture.
Risk also matters. A strategy that made a high profit by taking very high risk should not be judged in the same way as a strategy that made a reasonable profit with lower risk. So when checking past results, do not look only at the profit number. Try to understand the overall results and the risk taken to get those results.
Check SEBI Registration and the Type of Service
Before choosing a Research Analyst or Investment Adviser, check whether the person or firm is properly registered with SEBI for the service being offered.
A person may have thousands of social media followers or regularly share screenshots of profitable trades. That does not automatically mean the person is registered with SEBI. Popularity and SEBI registration are different things.
You should also understand what type of service you are getting. A Research Analyst generally provides research reports and recommendations related to securities. An Investment Adviser provides investment advice based on the type of advisory service being offered and may consider factors such as your financial goals and risk profile.
Understanding the type of service can help you decide whether it is suitable for what you actually need.
Good Research Should Explain Both Opportunity and Risk
A good recommendation should not only focus on how much money you may make. It should also help you understand the main risks.
For example, if a stock is recommended, you should understand the basic reason behind it. What does the company do? Why is the stock being considered? What could help the stock price rise? What could cause the price to fall?
You do not need to understand every financial number or difficult market term. The basic idea should be clear enough for you to understand why the recommendation is being made.
This is especially important in futures and options, where prices can move quickly and losses can also be large. A trade with high profit potential may also carry high risk.
Clear Information Matters
The service should be clear about important details such as risks, fees, service terms, and updates.
Suppose you buy a stock after receiving a recommendation and the price later starts falling. There may be new company results, important news, or a change in the market. Useful updates can help you understand what has changed.
This is why the quality of a research service should not be judged only by the first recommendation. The information and updates provided after the recommendation also matter.
Be Careful With Guaranteed Profit Claims
No one can know exactly what the stock market will do in the future. Even a good company can see its stock price fall, and a well-researched trade can end in a loss.
So be careful with claims such as "fixed profit every month," "no chance of loss," or "double your money without risk."
SEBI also tells investors to be careful about assured or guaranteed return claims made by Research Analysts. Research can help you understand an investment or trade better, but it cannot remove market risk.
Your Own Needs Matter Too
A strategy that works for one person may not be right for another.
For example, one investor may be comfortable with large price movements, while another may prefer lower risk. One person may be investing for ten years, while another may need the money much sooner. The amount of money each person can afford to risk can also be different.
This is why high past returns alone cannot tell you whether a service or strategy is right for you.
What Should You Check Before Choosing?
Past returns can be one part of your decision, but they should be considered along with other important points.
Check the SEBI registration and understand what type of service is being offered. See whether the research is easy to understand and whether the risks are clearly explained. Also check the fees, service terms, and how important updates are provided.
Most importantly, do not choose someone only because of a few profitable screenshots, popular social media posts, or impressive past returns.
Final Thoughts
Past returns can show you how some recommendations performed before, but they cannot tell you what will happen next.
When choosing an SEBI Registered Research Analyst or Investment Adviser, look at the bigger picture. Check the registration, understand the service, look at the quality of the research, understand the risks, and think about whether the service matches your needs.
A good past record can be useful information, but it should be one factor in your decision, not the whole decision.
Past returns can be useful, but they should never be the only reason for choosing a Research Analyst or Investment Adviser. Check the registration, research quality, risks, and whether the service is right for your needs.
