What's the Role of a Fund Manager

Surely before investing your hard-earned money, you want to check all aspects of the plan offered. Especially when it comes to equity funds, you look at the fund performance, expense ratios, the portfolio’s turnover, and so forth. One of the principal factors you must assess thoroughly before investing in a scheme is the fund manager.  

Analysing the track record of your fund manager is highly crucial. Your fund’s performance largely depends on your fund manager’s expertise, analysis, and research. You entrust your capital to these fund managers hoping for great returns. Performing as per your expectations and beyond requires the person to have the capability to handle related responsibilities well. Evaluating your fund manager is extremely important, but before we do that, let’s further understand the role of a fund manager. 

Who Exactly is a Fund Manager?

A sound investment fund enables multiple investors to benefit from large economies to generate high returns. Fund managers manage the trading activities and come up with unique investment strategies for the fund. They are further tasked with maintaining accurate accounting records for the fund. Commonly a fund manager is employed by private equity companies. 

What are a Fund Manager’s Duties?

The primary function of a fund manager includes analysing and selecting bonds, stocks, etc., to invest the money pooled under the fund. These decisions must be made by keeping the fund’s strategy in mind, as noted in the prospectus. Fund managers are further expected to prepare reports on the fund’s performance for their clients and report underlining the objectives and risks of the fund for potential investors.  

Your funds should align with the regulations put down by the Securities and Exchange Board of India and other relative authorities. A fund manager must ensure that the fund works while complying with these norms. If the fund fails to do so, the manager is held responsible by the investors and legislators. 

How Do Fund Managers Take Their Investment Decisions? 

The manager is tasked with increasing the amount pooled by multiple investors in a fund. This is indeed no small feat. To achieve the expected returns on the fund, it is crucial that the fund managers spend considerable time researching and analysing before investing in any security. Some factors that managers take into consideration when making a decision include: 

1. Shifts in the share market and trading volumes 
2. Performance of competitors in the industry 
3. Yearly reports of companies they intend to invest in 
4. Meetings and conversations with top management executives of companies 

However, not every fund manager will take charge of the fund so actively and make decisions all the time. It is essential to learn about the two types of fund management, i.e., active, and passive management. Both have different strategies and require different managerial skills. It is important to check which method your fund manager utilises for the funds you invest in.  

Active Vs Passive Management

Your fund manager will either actively or passively manage your funds. How your pooled money is utilised affects the returns you are likely to get as they deploy different strategies. The two types of funds entail different pros and cons. Here’s what you need to know about the two. 

Under active management, the fund manager will actively manage your funds with an aim to provide returns higher than the benchmark indices. However, with this comes additional risk and expense ratios. Your funds are managed passively, and the returns are moderate under passive management. However, the risk is lower and so are the expense ratios. 

How Do I Evaluate My Fund Manager?

We know you are not an industry expert and ‘evaluating’ a professional might sound daunting. Don’t worry. Just look out for some of these pointers before entrusting your wealth to a fund manager. A major benefit of investing through a fund house is that you do not have to manage your capital investments alone. The fund manager in charge of the fund will manage them for you with their expertise and knowledge. 

However, the risk now also lies in the hands of this manager. They must make smart decisions and manage your fund effectively to shield you from potential loss and help you get high returns. While a fund’s performance is majorly dependent on market forces, your fund manager’s skills also contribute to the growth of your capital. A well-trained manager can surpass their competitors and relevant benchmark indexes to get you great returns. 

But how do you evaluate one? 

1. Style of Investments – Understanding the style of investment of a manager under a certain investment scheme is key to evaluating your fund manager. Find out if the decisions taken are as per a particular process or if he invests based on his individual analysis. 
2. Individual or team management – It is essential to know how many funds are being managed by your fund manager at a time. If they have a team that assists them in their job, then managing many funds is not a problem. However, in case they are working individually, it is possible they may not be able to handle too many funds at a time, which can lead to a drop in the performance of the funds.  
3. Fund History – Make sure to know more about the previous funds your manager has handled and their performance. This will help you get an idea of your manager’s capabilities. 

These are not the definitive parameters for selecting a fund and its manager but are indicators to predict the fund’s future performance. Ensure you thoroughly research and analyse your fund and its manager before investing in any plan. 

Should I Close the Fund if the Manager Quits?

If a fund manager is so essential to a fund’s performance, an obvious question may revolve in your mind – What to do if the manager quits? A manager does play a crucial role in such funds, however them quitting should not send you in a frenzy. Such sudden exits can go both ways for the fund. The performance might dwindle over time or hike up exponentially with the new manager.  

What you can do is, stay vigilant of the fund’s performance for a few months from the manager’s exit. If the levels keep dropping, you should consider folding in the returns and investing in some other scheme. However, ensure that a short-term underperformance is not the basis of your decision to quit the fund. Amongst market fluctuations, it is common to see funds perform lower than expected for some time; however, if managed well, these will emerge on top eventually. 

A fund manager plays a vital role in ensuring you get the expected returns from your investment. Therefore, selecting the right manager is essential. Now that you have understood the various parameters to consider when evaluating a fund manager, put your knowledge to the test! Analyse, research, compare and pick a plan that will multiply your savings! And whilst you are at it, why not come check the wide range of mutual funds we have to offer here on Bajaj Markets! Select a fund that aligns with your financial goals and grow your savings exponentially!