The head chef at any restaurant is responsible for creating the menu, designing dishes that best represent the vision of the restaurant, sourcing the necessary ingredients to prepare them and leading a team of chefs to aid him.
Similarly, a mutual fund manager is the face of the fund house, in charge of either one or many mutual fund schemes, and has an investment strategy that they follow to meet the objectives of the mutual fund. This article will focus on the role of mutual fund managers and how investors can evaluate them.
Who is a Fund Manager?
A fund manager is an individual tasked with managing the fund house’s scheme or schemes on behalf of the investor. This involves implementing the investment strategy of the fund house well as carrying out the trading activity, i.e. buying or selling equity and debt securities for the portfolio, depending on the nature of the scheme.
Role of Mutual Fund Manager
A fund manager is expected to have the necessary expertise and experience to manage the fund’s portfolio. A significant part of the job involves extensive study and analysis of the markets, which can facilitate their decision-making. A fund manager typically has a team of analysts who are tasked with studying companies, meeting key management personnel, making financial models and writing research reports, all of which helps the fund manager make an informed decision.
Responsibilities of Fund Managers
Fund managers have a slew of responsibilities on their shoulders. These include:
Understanding regulations: Fund managers are expected to be abreast of regulatory requirements and ensure that all fund activities comply with the regulations and legislation outlined by regulatory bodies such as the Securities and Exchange Board of India (SEBI) as well as AMFI and other regulators.
Fund monitoring: A fund manager must regularly monitor the fund by tracking market movements and taking advantage of any opportunities to meet the scheme's objectives.
Meticulous research: A fund manager is expected to thoroughly research industries, companies, stocks and debt instruments that will help him decide on managing the portfolio . He is required to be aware of recent developments, annual results, and earning announcements made by companies. Typically, a fund manager will have a research team that will aid him in his duties.
Active vs Passive Managers
In active management, the fund manager actively carries out trading activities based on his knowledge of the markets, the information at his disposal and his experience.
In passive management, the scheme is typically benchmarked to an index, and the portfolio is built using the index as the base.
How to evaluate a Fund Manager?
These are the factors you can consider while evaluating a fund manager:
Investment style: Based on the nature of the scheme, the fund manager might adopt an aggressive or conservative approach. As an investor, depending on your risk appetite, you can decide whether the fund manager's investment style is likely to work for you. You could also consider understanding whether the fund manager independently makes his investing decisions or whether he is following a default system.
Track record: If a fund manager has been at the helm of mutual fund schemes for a considerable period, you can base your evaluation on their track record. It can also give you a reasonably fair picture of their investment style.
Since a mutual fund manager invests your funds in equity or debt on your behalf, evaluating his expertise and experience in the field makes sense. Having said that, while fund managers have an important role to play, it is not necessarily a good idea to make that the sole reason for investing in a particular scheme. Fund managers, after all, can come and go, but if the scheme you have invested in continues to meet its objectives, it makes sense to remain invested in the fund even if the fund manager quits and a new one takes over.
Disclaimer:
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.
