If you have ever thought of investing in mutual funds and would have enquired somebody, how to select a best mutual fund scheme to invest in, you must have heard about many parameters to analyze and select the right fund to invest. Out of all these parameters, there is a parameter, popular as the analysis of the performance of the fund manager, managing the fund.
Investors are always advised to analyze the service and the performance of the fund manager before investing in a mutual fund.
Researching and analyzing about a fund manager isn’t a big deal, but the situation becomes critical when you choose a fund on the basis of its fund manager, start investing and suddenly one fine day, the fund manager of your fund quits, now you are left with no one to guide you on this rocky path of investment.
Well, everyone wishes to have a job with a good salary and are in continuous search of it, similarly, the mutual fund managers are always in search of a job with salary more than the current place, if they get one, they move, sometimes they also get promoted, after their excellent performance in the industry.
When the fund manager quits the fund, the question that arises in the mind of investors is, whether they should stay invested or start chasing the fund manager, and exit their current fund? A fund manager is an essential parameter that enhances the funds’ performance and ultimately returns, thus if the fund manager changes, we can’t ignore it, although if you plan to exit, then before that you need to at the following aspects:
Exit or Promotion?
Well, before you take any decision regarding your investment in the fund, primarily check whether the fund manager of your has been promoted within the same organization or has shifted to a new fund house?
If your fund manager has been promoted in the same fund house, then you can relax, as your manager will still be regulating the investment process of the fund, but don’t forget to analyze the past track record of the new fund manager.
If your fund manager has shifted to a new fund house, then there is a matter of worry! In that case, it is a must for you to evaluate your new fund manager's past track records and check the performance of the funds they had been handling before.
There are some fund houses that employ, two fund managers to manage a single fund, well this helps in succession planning, in case if one quits, there is always the other fund manager who protects the fund's performance by getting affected by the exit of other.
Check for any change in Investment Strategy
The very important thing of any fund is an investment strategy, on which it works, and based on which a fund manager manages the fund. The fund’s investment strategy should always be aligned with your investment goals and objectives, if it is not, then there’s no point in investing. Therefore, check whether your new fund manager is managing the fund with the same investment strategy or he has brought some changes in it.
Also check, whether the changed strategy is working for your goal and objectives or not!
The best way to analyze the change in investment strategy is, by looking at the portfolio’s turnover ratio. If you witness a significant change in the value after hiring the new fund manager, it may indicate that a good part of the existing portfolio is getting replaced. You can also check it by looking at the fund’s top holdings, if there’s any significant change, it indicates that the investment strategy has changed.
It is always advisable for investors to have a regular check on their funds’ performance for at least one year after a fund manager moves out. If the fund continues to perform well and there is not a large difference in the performances, before and after the exit of the fund manager, then there is no point to exit just because the fund manager has left. It's always good to be assured, that your fund is performing well and is in good hands, however, if you witness a significant fall in the fund's performance, then you can exit the fund, but remember, be invested in mutual funds.
Most importantly, do consult a financial advisor, before taking any steps towards your investment, you can also enquire about the best funds in case if you decide to exit your fund.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).