Every March, Suresh becomes a different version of himself. For most of the year, he is a patient insurance agent who sits with families, asks about their actual needs, and takes his time. But March is the last month of the financial year, and Suresh has an annual premium target handed down from his company that he must hit before the thirty-first. So he calls everyone he has ever met. He pushes policies onto people who already have enough cover, nudges families toward plans with higher premiums because those carry a bigger commission, and occasionally sells a policy to someone who, a year later, quietly lets it lapse because they never really understood what they had bought or why. Suresh's premium number for the year looks excellent on his company's dashboard. Whether the people who bought from him in March actually ended up better protected is a separate question entirely, one that his target was never really designed to answer.
Most organisations, and most of us as individuals, assume that when we pick a number to track, that number faithfully stands in for the real thing we actually care about. A sales target stands in for genuine customer value. A fund's one-year return stands in for the quality of its investment process. A star rating stands in for how good a fund actually is. This feels like a safe assumption to make, since the whole reason anyone picks a measurable number in the first place is to get a handle on something that is otherwise too fuzzy to track directly. What often gets missed is that the moment people start being rewarded specifically for moving that number, the number and the real goal it was meant to represent can quietly drift apart, until chasing one no longer has much to do with achieving the other.
The Economist Who Watched a Number Stop Working
This idea has a precise origin, and it did not begin with insurance or mutual funds at all. In 1975, the British economist Charles Goodhart, then an adviser to the Bank of England, presented a paper to the Money Study Group at the London School of Economics, describing something he had noticed in monetary policy. For years, certain measures of the money supply had shown a stable, reliable relationship with inflation, which made them useful indicators for policymakers to watch. But the moment the Bank of England began deliberately targeting those same measures in order to control inflation, the old, dependable relationship broke down. Banks and financial markets adapted their behaviour around the new rule, and the very regularity that had made the measure useful in the first place simply stopped holding. Decades later, the anthropologist Marilyn Strathern, writing about a completely different subject, university audit systems in Britain, distilled Goodhart's original observation into the single sentence by which it is best known today: when a measure becomes a target, it ceases to be a good measure.
Why the Target Itself Changes the Behaviour Behind It
The mechanism here is not complicated once it is stated plainly. A number only reflects reality faithfully as long as nobody is specifically trying to move that number for its own sake. Once a reward, a bonus, a ranking, or a promotion gets attached directly to the number, people quite reasonably start optimising for the number itself, through whatever path gets them there fastest, and that path does not always run through the underlying goal the number was originally meant to track. Suresh is not a dishonest person. He is simply responding, in a perfectly ordinary human way, to a system that pays him for premium collected in March, not for whether the policies he sells in March are still active and useful two years later. The measure was never inherently false. It became misleading only once it was turned into the thing being chased.
The same pattern quietly appears far beyond finance. Students often begin studying for marks instead of learning. Companies optimise quarterly earnings instead of building durable businesses. Hospitals may focus on reducing waiting times rather than improving patient outcomes. Investors chase one-year returns instead of building long-term wealth. The settings may be different, but the underlying incentive remains remarkably similar. Once a measure becomes the goal, behaviour gradually shifts toward improving the measure itself, even if the original purpose slowly fades into the background.
Where This Shows Up in Indian Finance Right Now
This pattern is not a historical curiosity confined to old British monetary policy. It is actively playing out in Indian finance this year. Reports in 2026 have described how India's insurance regulator, IRDAI, is preparing to overhaul how insurance commissions are structured, precisely because current arrangements, in which agents can receive substantial upfront commissions, in some cases approaching forty percent depending on the product and regulatory framework, have been widely blamed for fuelling exactly the kind of policy churn and lapses that arise when a customer is sold a product that suits the agent's target more than the customer's actual needs. The regulator's proposed fix, spreading commission payments across the entire life of a policy rather than loading them upfront, is a direct attempt to re-attach the reward to the real goal, a customer who stays satisfied and covered for years, rather than to a one-time sale that counted toward someone's monthly number.
The mutual fund industry offers a close cousin of the same pattern. Fund houses know that flashy trailing one-year returns and favourable star ratings are what pull in new money, and new fund offers have historically clustered heavily during strong bull-market phases, when recent performance numbers look their most attractive. Data on new fund collections shows that the share of money going into actively managed equity new fund offers rose from around half of total NFO collections in 2021 and 2022 to seventy-seven percent by 2024, tracking closely with the market's mood rather than any particular need for new products. The Securities and Exchange Board of India moved to interrupt part of this incentive structure in 2025, barring distributors from earning higher commissions specifically for switching an investor's existing money into a brand new fund launch, a rule aimed squarely at breaking the link between what a distributor got paid and what actually served the investor sitting across the table.
Why This Should Change How You Read a Star Rating
None of this means every insurance agent is chasing a quota at a client's expense, or that every fund with a high star rating is secretly undeserving. What it does mean is that any number built specifically to be chased eventually gets chased, by the very people whose job depends on moving it. A star rating built mostly from a fund's recent one-year or three-year return will naturally look best right when a fund has just had an unusually strong run, which is often precisely the moment its underlying strategy is closest to running out of room, not at its most durable. The honest question worth asking of any impressive number in finance is not simply whether it is accurate, but who was rewarded for producing it, and whether that reward was ever actually tied to the outcome the number claims to represent.
Where the Idea Needs Care
It would be wrong to conclude from all this that targets and measurements are themselves the enemy, or that no number in finance can be trusted. Measurement remains essential; a regulator, a fund house, or an individual investor genuinely needs some way to track progress, and abandoning numbers altogether would leave everyone flying blind. The lesson from Goodhart's work is narrower and more useful than that. It says that a measure stays trustworthy only for as long as it is treated as a window onto the real goal, and it starts to mislead the moment it becomes the goal itself. IRDAI's move toward spreading commissions across a policy's life, and SEBI's restriction on NFO-switching incentives, are both, in effect, attempts to repair that broken window, not attempts to get rid of measurement altogether.
The Money Vichara Reflection
Suresh will likely still have a target next March, and there is nothing wrong with an organisation wanting to track something. What is worth remembering, both as someone being sold a product and as someone managing one's own financial habits, is that any single number chased hard enough eventually stops telling the truth about the thing it was built to represent. Before trusting a glossy premium pitch, a star rating, or a headline return figure, it may be worth pausing to ask a quieter question first. What exactly was this number designed to reward, and is that reward still pointing in the same direction as my own actual goal.
That is the real vichara.
This blog shares personal opinions for educational purposes only. The author is not registered with SEBI. This is not financial advice. © 2026 Money Vichara.
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