Imagine you bought all the tickets available in a train and then started selling them to different people who enter the station in order to make a quick buck. The train is about to leave and you still have tickets to sell. You begin to offer discounts. A tramp comes and buys one. Another is picked up by a criminal and another by a psycho who promises to pay later. The train is filled up with all kinds of people with only a few good men in between. Now can you imagine the fate of the journey? The criminal loots, the tramp begs and the psycho irritates his fellow travellers. They make a din like it was not a train but a rock concert. This train is like a portfolio of stocks which most investors buy randomly without doing any kind of research or discipline. When you think you are a stock picker and make a portfolio you are likely to have such duds as well.
The other method is investing in stocks through a Mutual Fund. Here tickets are sold by an authority to people who have identified documents, who are willing to pay up, who are willing to sign up on ‘good conduct’ declaration forms. Now imagine how this train would be. Obviously it would be disciplined, peaceful and happy. This you may compare with a mutual fund portfolio where a fund manager is like the train guard who allows stocks in only after verifying their documents. Lawbreakers are simply not allowed in the portfolio.
Investopedia defines, “Fund Manager is the person(s) responsible for implementing a fund’s investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people.” The fund manager must have a high level of educational and professional credentials and appropriate investment managerial experience to qualify for this position with any asset management company (AMC).
Financial advisors recommend look for long-term, consistent fund performance with a fund manager whose tenure with the fund matches its performance time period. A financial advisor from Pune explains, “Investors need to understand that the whole point of investing in a mutual fund is to leave the investment management function to the professionals. So, the quality/experience of the fund manager is one of the key factors to consider while analysing any particular fund.”
What marks a fund manager out as a ‘star’, or the face of the mutual fund? It’s a debatable question. Here are some of the factors at play:
Stay invested but don’t buy any more units until you can see the performance impact for at least three quarters, perhaps even a year
- The media
- The distributors
- The investor community
- The fund houses
Pankaaj Maalde, a Mumbai based financial advisor explains, “A fund manager becomes star fund manager by his/her own performance. Nobody can make him/ her star and take their credit worthiness.”
A financial advisor from Chennai explains, “It’s important to consider fund managers as any other corporate employees. Sooner or later they are bound to exit if they don’t like their work environment or if someone else offers them a better pay or they looking forward to entrepreneurial opportunities.”
Recently, business media was abuzz when fund manager Kenneth Andrade, the man behind IDFC’s flagship Premier Equity fund quit his job. However, most investors don’t understand what the big deal is? What should they do with their investments in mutual fund schemes handled by long time fund manager who is decides to change his job?
While investing most investors don’t give much importance to fund manager but compare the schemes with its peers. Even they analyse past performance, portfolio holdings and risk ratios if able to understand.
However, when media plays up stories of a high-profile manager exit, should they rethink their investments? Investors react, as if they invested into particular scheme because of fund manager and had analyzed the stock picking skills.
To tackle such situation Gaurav Mashruwala, Founder of A Cutting Edge based in Mumbai says, “When a fund manager steps down from flagship mutual fund scheme or exits AMC then investors are left with two options. First option, don’t worry too much and continue with monthly investment. Analyze the performance of a scheme for next two to three quarters. If its underperforming then stop monthly investment and let the corpus grow or plan out systematic withdrawal from the scheme. Second option, consider a fresh start by new fund manager and don’t compare his/her skills with previous fund manager.”
In such situation Hyderabad based financial advisor is of the opinion, “Stay invested but don’t buy any more units until you can see the performance impact for at least three quarters, perhaps even a year.”
Investors should take a note of changes in the fund house but only take a final call after a due review process. AMC should focus more on promoting the process which discusses on fund selections, risk control, compliance through fund manager interviews in media.
|Snapshot Of High Profile Exit In The Mutual Fund Industry|
|Fund Manager||Asset Management Company||Designation||Flagship Funds Managed||Year of Exit||Purpose|
|Kenneth Andrade||IDFC||Chief Investment Officer||IDFC Premier Equity, IDFC Equity Fund and IDFC Equity Opportunities||2015||To look for entrepreneurial opportunities in investment management|
|Nilesh Shah||Axis Capital||MD and CEO||–||2015||To join Kotak Mahindra as MD and CEO|
|Sivasubramanian KN||Franklin Templeton||Chief Investment Officer||Franklin India Bluechip Fund, Franklin India Prima Fund, among others||2014||Retired|
Written By: Hiral Thanawala