Window Dressing

Window dressing is a practice employed by fund managers near the end of a quarter or financial year — typically in the last two to three weeks before the reporting date — in which they buy recently outperforming stocks and sell underperforming holdings to make their portfolio appear more impressive in the period-end disclosure to investors. By prominently featuring high-performing, well-known stocks in the reported holdings, fund managers aim to create the impression of astute stock selection even if those positions were acquired just days before the reporting date. Window dressing can also involve selling losing positions before the reporting date to avoid having to explain poor-performing holdings to investors. In Indian mutual funds, quarter-end portfolio disclosures are closely scrutinised for evidence of window dressing — large position changes in the final days of a quarter, particularly in momentum stocks, are a common signal. SEBI's portfolio disclosure requirements make window dressing increasingly difficult to conceal from analytical investors.