- Date : 07/09/2023
- Read: 3 mins
Impulsive responses to stay or leave are less advisable when your mutual fund manager changes. Hence, observe and evaluate first before taking a decision.
Introduction: How to deal with a fund manager's exit?
If the departing mutual fund manager had a strong track record of consistently delivering good returns, his investment strategy to manage the fund was indeed effective, and his departure could be a cause for concern. However, knee-jerk reactions to a fund manager's sudden exit might not always be the best approach. Assess the strength and experience of the entire management team. If the team is skilled and resourceful, the impact of a single fund manager's departure might be mitigated. A smooth transition with an experienced successor might indicate that the fund's performance would essentially remain stable.
Highlights:
- Haste may be a waste when responding to changes in a mutual fund's manager
- Observing and assessing the mutual fund for a few quarters is recommended
- While exiting from a mutual fund, consider exit loads and taxes
- Diversification in multiple mutual funds is recommended to mitigate the risk
What is fund management?
Mutual fund management involves managing investments and strategies within a fund's portfolio for optimal performance.
Wait and watch
The majority of retail investors focus solely on the fund's performance, overlooking factors such as management philosophy and team composition. In such cases, monitor the fund's performance for three to four quarters, allowing the new manager some time to prove themselves. A decline compared to peer performances might signal concern. Be vigilant about shifts in the scheme's turnover ratio. A surge in this ratio could indicate the new manager is altering the portfolio, affecting returns and risks potentially.
Also Read: Does the size of a mutual fund affects its performance?
What other factors should investors consider?
Investors should consider their own investment goals, risk tolerance, and time horizons. Prevailing market conditions and economic outlook can influence the performance of a mutual fund. Leadership changes might be less significant during certain market environments. Exiting a mutual fund might involve transaction costs, exit load, and taxes. One should consider these costs with the potential benefits of switching to another fund.
Recommended investment strategy
Diversification spreads the risk and makes the investment portfolio resilient. If the investment is in multiple mutual funds and asset management companies, it mitigates the potential risks created by change in the fund manager. Diversification enhances overall portfolio stability and returns.
Parting thoughts
A fund manager executes an investment strategy and supervises portfolio trading. Change in fund management affects performance, but it's not always negative. Asses the funds’ performance after a change in management before deciding to exit the fund, then make an informed choice.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
