How to analyze the importance of your fund manager?

By BankBazaar | May 19, 2012
Investments are usually done so that an investor can complete his financial responsibilities and stay away from any credit risk. Opting for loans like personal loan etc, need not be an option if you have managed to invest wisely with the help of your fund manager. As a new investor, it is advisable to choose a fund manager that helps your money grow by investing in those assets whose returns can benefit you.  But in the last couple of years, from at least 70 Equity Mutual Funds (MFs) fund managers have quit. Such significant numbers are bound to incite anxiety among investors since the role of a fund manager is quite significant when it comes to prudent financial decision making so that your portfolio can at least earn average returns.
If you are facing such a situation, here is what you should do – analyze the performance of the fund you have already invested in and then compare its performance with that of your fund manager’s new fund. After comparing, stick with the one that has a proven long term performance record.
Now we shall analyze as to how exactly your portfolio is going to be affected, when your fund manager exits.
In India, unlike the US, there is no star fund manager’s performance syndrome.  However, this region has been lucky to see certain fund managers rise to the top with their practical and prudent decision making system. For an Asset Management Company (AMC), the reaction in the event of a fund manager’s exit is varies from each AMC to AMC’s policies and procedures. There are certain fund houses that let the manager to exit just the very next day  whereas some fund manager’s prefer to analyze their investors’ portfolio’s and make the necessary changes if required so that his exit does not affect an investor’s portfolio.
What investors must realize is that it is not only one fund manager that influences the returns on their portfolio, but the involvement of a lot of back end processes that are mainly system generated, and also the role of the assistant fund manager.
What about the new fund where your fund manager has gone to?

That depends on the competency of your ex- fund manager. The better way by which you can analyze is by comparing the fund’s performance which your fund manager is currently associated with. If it seems to be performing better than your fund, then after analyzing the pros and cons, you can choose to exit.
Reiterating, it is not really possible for just one person to influence the performance of a particular fund since the back end processes followed by each Asset Management Company (AMC) varies. The fund manager is however, responsible for picking stocks for a particular investor’s portfolio, after his resignation, the second in line will be given the authority to take charge.
Long term performance of any fund should give you an idea as to how the fund is particularly performing as it also indicates up to a certain extent a fund manager’s performance. But as a prudent investor you should be able to understand the style of a fund manager’s performance. If the underlying fundamentals of a fund manager matches with yours it is better to opt for the particular fund manager if not look out for other options after all its your money and you should be comfortable to hand over your money to your manager with utmost trust.
What should you do?

There is no scientific method or certain set of rules you as an investor can apply in order to analyze the efficiency or the success ratio of your fund manager. It all comes down to the long term performance of your fund and the fund which your fund manager just overtook. So if your fund manager has left the fund, do not panic. Keep a track of your fund’s performance for at least a period of 6 months and understand the changes, if any, and then decide whether you need to shift to your previous fund manager or not.
It is also important that you analyze the equities that your fund house mainly invest your funds into since if one equity doesn’t perform well at certain point in time the other investments can help you stay afloat.
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