Choose investment funds wisely

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Whenever you fall sick, what is the first thing you do? Visit a doctor and buy medicines prescribed by him or her? But some people simply consult Google, ask a few friends and buy random medicines to cure themselves. In such a case, what happens when the medicines don’t work, or it further worsens their conditions? This is why it is important to consult a doctor before taking any medicines.

In the same way, it is important to consult a specialist before investing in mutual funds, so that he can take care of your financial health. Such a person is known as a fund manager.

These are experts who understand the stock markets and economy well, prepare mutual fund schemes and then decide in which asset classes will their scheme invest in. Their objective is to balance risk and returns for retail investors so that investors are able to get maximum returns with minimal risk. A fund manager is the heart and brain of any fund house. They prepare any mutual fund scheme basis their experience, research and analysis. It is the fund manager who decides which stock will their scheme buy or sell at any given point of time. According to a Morningstar Investment Adviser India Annual report, India has around 428 fund managers. The total asset under management of the mutual fund industry is Rs 44. 82 lakh crore. These fund managers are responsible for managing all these funds. A fund manager defines his/her strategy basis the market trend, economic condition and investor’s objective. The fund manager keenly tracks your portfolio. In case you incur a loss, they deploy risk management techniques to ensure that you get better returns in every condition possible. Says Mohit Gang, “An experienced fund manager takes crucial decisions related to your portfolio, and makes periodic, swift changes to the scheme with respect to increasing or decreasing investments in it. But most importantly, they deliver solid, risk-adjusted returns”. Says Gang, “Investors do not have the capacity to calculate and adjust their investments from time to time. A fund manager can do so, since he/she has the required figures and details”.

Do changing fund managers impact your returns

This is important to understand. Last year, HDFC AMC chief fund manager and investment officer Prashant Jain resigned from his position. This stirred investor concerns, as they were worried about what impact this exit will have on their mutual fund investments. A change in mutual fund manager impacts the trust reposed by  investors in that fund. The impact of exit of any fund manager is seen on the scheme’s strategy and its returns. Investors should take a call basis their investment objective. Understand the objective and end goals of any scheme. Is this commensurate to  your financial objectives and risk taking capacity? Keep in mind the reputation and stability of the fund house. Established AMCs are well equipped to manage situations that entail changing fund managers. If you are confused about the management shake-up, you can consult with a financial advisor, who can guide you keeping in your financial conditions. Don’t go only by the fund manager’s name. A fund manager plays an important role in shaping how a mutual fund performs. But this should not be the sole factor while deciding whether or not you want to invest in it. If you invest in passive mutual funds, the role of a fund manager is even more limited. No mutual fund product guarantees capital protection or fixed return. While investing in a mutual fund, consider the scheme’s previous track record, fund objective, size and strategy, expense ratio and other associated risks.

A fund manager is responsible for the success and failure of any scheme. Money9 suggests before you choose any scheme of a fund house, research on his/her investing style and the track record of previous schemes managed by him. Focus on long term performance instead of short-term returns.