In any fund house, one may find different schemes of mutual funds like equity funds, debt funds, balanced/hybrid funds, index funds and money market funds to name a few. The primary role of a fund manager is to ensure better returns for his investors through the purchase/sale of stocks/bonds/ treasury bill (also known as scripts). It is the fund manager who tells the investor which fund or company to invest in, based on his/her investment goal and risk appetite.
A fund manager will be supported by a team of research analysts who provide day-to-day information on how stock performances. Based on this data, the fund manager takes a call whether it is beneficial to hold the fund or sell the stock of a particular company, which will change the composition of the portfolio of the fund. However, his duty is not limited to providing returns but also to keep the expense ratio low.
The mutual fund returns are calculated on the NAV (Net Asset Value) after accounting for the expense ratio. Expenses are deducted from your fund on daily basis before calculating the NAV. This means that the capital gains you make are after already adjusting these expenses. Thus the returns you see on the NAV are the returns you realise as an investor.
An investor may not be able to monitor funds daily and this task is usually outsourced to a fund manager. Based on the risk appetite of an investor, the fund house launches different schemes in the market. A fund manager has to ensure that he beats the BSE/NSE benchmark returns, else there’s no reason to attract an investor towards a particular fund. Effectively, the fund manager is responsible for good returns as well as answerable in case funds performs poorly.
Know about the fund manager before investing. How?
Since a fund manager plays a pivotal role in the performance of the fund, his track record of fund management matters a lot in assessing his/her expertise. And this is something you should look into, provided you are well-acquainted with mutual funds as a subject as well as its current trends. His track record can be gauged by looking at the following:
1.Corpus of fund managed
2.Return on investments
3.Duration for which his funds have been consistently performing
4.Kinds of schemes handled by him viz Equity, debt, money market etc
A fund manager may be the decision-maker, but he’s also aided by the Chief Investment Officer and other management leads of the fund company.
Other aspects to know
Change of fund manager should not be the sole reason to switch or redeem from one fund or fund house to another. Expense ratio of a fund and composition of the portfolio a fund holds are other significant factors that may impact your returns.
All the above information is provided in the Scheme Information Document (SID) and Key Information Memorandum (KIM) provided by fund houses, which undergo relevant revisions from time to time.
If there is any change in portfolio, an investor has to read & understand before investing which is available in the SID and KIM.
At last, a mutual fund is a tool for wealth creation & should not be judged in short run as it usually reaps benefit only in the long run.
“So keep investing!”