- Date : 28/09/2022
- Read: 4 mins
Fund managers are crucial to the performance of a fund. However, like any other job, they can leave while you remain invested. In such cases, it’s best to understand the reasons for departure and monitor the fund performance before deciding on the exit strategy.
Fund managers are crucial to the performance of a fund. However, like any other job, they can leave while you remain invested. In such cases, it’s best to understand the reasons for departure and monitor the fund performance before deciding on the exit strategy.
Mutual fund investments have increased considerably in the last ten years. The assets under management (AUM) of the entire Indian mutual fund industry have witnessed a two-fold increase in the last five years, touching nearly INR 40 trillion in August 2022. With mutual fund investments on the rise, it’s important to understand who is responsible for the performance of the fund, in order to keep your investments safe and growing.
Also read: 2 Major Reasons Why Mutual Funds Are Better Than Bank FDs
Fund Manager in mutual funds
Mutual funds are managed by a fund manager. This management of the fund is done either actively or passively on an established index. It is the fund manager’s responsibility in picking out the components of the fund, thereby playing a major role in the performance of the fund.
The fund manager is also responsible for carrying out due diligence, risk assessment, monitoring, diversification, etc.
Also read: What Are Passive ELSS Funds? Should You Invest In Passive ELSS Funds?
What should I do if the fund manager exits?
If the fund manager has existed a fund you’ve invested in, do not panic. As is the case with any leadership position, there are systems in place for an eventuality such as this. Here’s what you should do.
1. Find out the circumstances of the departure
Many times, the fund manager may move to a different company in search of better benefits. The manager may even be promoted internally. In both cases, there’s no need to worry as a well-performing manager will most likely be replaced by someone with equivalent potential. Moreover, if the manager is in the same company, there’s a strong likelihood for them to keep an eye out for their previous fund.
If the manager was sacked due to negligence or overt risk-taking, then too, there’s reason to remain optimistic as course corrective measures would take place.
2. In most cases, stay invested
Most organisations know that it’s inevitable and unavoidable – the change in fund managers. Therefore, there’s a team that supports the manager in his/her endeavours. With a well-functioning organisation, you wouldn’t notice the change in fund managers as the process is seamless.
However, if the fund house relies heavily on the manager in managing the fund, then the investor has reason to be wary. In this case, it’s important they understand the reasons for the manager’s departure and decide on your investment status accordingly.
3. In case of asset reallocation
If the incoming fund manager decides to realign the philosophy of the fund, then it causes you to reconsider your investment. Look at the direction the fund is going in, whether it’s more conservative, or bold in terms of risk and realign it with your investment portfolio accordingly. A good indicator of the change in the fund’s properties is the turnover ratio and the portfolio P/E (price-to-earnings ratio).
4. Keep an eye on performance
Finally, monitor the performance of the fund under the new leadership for a few months. Depending on how it performs, and your existing portfolio performance, take a call on whether you would want to remain invested or not. Excessive churning in the fund could be cause for concern in which case consider tweaking your exit strategy.
Also watch: How your Returns get Reduced by some Investing Practices
Stay or leave?
While a fund manager leaving may affect the fund's performance, it may not necessarily be a bad thing. A new fund manager could bring in new ideas and develop new opportunities for wealth creation. But the opposite is also true.
However, fund houses have the necessary teams in place to ensure seamless continuity, so investors can remain worry-free. It is always good to know more about the new fund manager to understand how the fund philosophy could be affected, which could then help you devise your exit strategy.
Fund managers are crucial to the performance of a fund. However, like any other job, they can leave while you remain invested. In such cases, it’s best to understand the reasons for departure and monitor the fund performance before deciding on the exit strategy.
Mutual fund investments have increased considerably in the last ten years. The assets under management (AUM) of the entire Indian mutual fund industry have witnessed a two-fold increase in the last five years, touching nearly INR 40 trillion in August 2022. With mutual fund investments on the rise, it’s important to understand who is responsible for the performance of the fund, in order to keep your investments safe and growing.
Also read: 2 Major Reasons Why Mutual Funds Are Better Than Bank FDs
Fund Manager in mutual funds
Mutual funds are managed by a fund manager. This management of the fund is done either actively or passively on an established index. It is the fund manager’s responsibility in picking out the components of the fund, thereby playing a major role in the performance of the fund.
The fund manager is also responsible for carrying out due diligence, risk assessment, monitoring, diversification, etc.
Also read: What Are Passive ELSS Funds? Should You Invest In Passive ELSS Funds?
What should I do if the fund manager exits?
If the fund manager has existed a fund you’ve invested in, do not panic. As is the case with any leadership position, there are systems in place for an eventuality such as this. Here’s what you should do.
1. Find out the circumstances of the departure
Many times, the fund manager may move to a different company in search of better benefits. The manager may even be promoted internally. In both cases, there’s no need to worry as a well-performing manager will most likely be replaced by someone with equivalent potential. Moreover, if the manager is in the same company, there’s a strong likelihood for them to keep an eye out for their previous fund.
If the manager was sacked due to negligence or overt risk-taking, then too, there’s reason to remain optimistic as course corrective measures would take place.
2. In most cases, stay invested
Most organisations know that it’s inevitable and unavoidable – the change in fund managers. Therefore, there’s a team that supports the manager in his/her endeavours. With a well-functioning organisation, you wouldn’t notice the change in fund managers as the process is seamless.
However, if the fund house relies heavily on the manager in managing the fund, then the investor has reason to be wary. In this case, it’s important they understand the reasons for the manager’s departure and decide on your investment status accordingly.
3. In case of asset reallocation
If the incoming fund manager decides to realign the philosophy of the fund, then it causes you to reconsider your investment. Look at the direction the fund is going in, whether it’s more conservative, or bold in terms of risk and realign it with your investment portfolio accordingly. A good indicator of the change in the fund’s properties is the turnover ratio and the portfolio P/E (price-to-earnings ratio).
4. Keep an eye on performance
Finally, monitor the performance of the fund under the new leadership for a few months. Depending on how it performs, and your existing portfolio performance, take a call on whether you would want to remain invested or not. Excessive churning in the fund could be cause for concern in which case consider tweaking your exit strategy.
Also watch: How your Returns get Reduced by some Investing Practices
Stay or leave?
While a fund manager leaving may affect the fund's performance, it may not necessarily be a bad thing. A new fund manager could bring in new ideas and develop new opportunities for wealth creation. But the opposite is also true.
However, fund houses have the necessary teams in place to ensure seamless continuity, so investors can remain worry-free. It is always good to know more about the new fund manager to understand how the fund philosophy could be affected, which could then help you devise your exit strategy.
