Selecting the Right Fund Manager: Considerations and Strategies
Next, we will outline some key factors to consider when evaluating a fund manager before making an investment in their scheme.
Understanding the Role of a Fund Manager
Fund managers are financial professionals who are hired by Asset Management Companies (AMCs) to oversee mutual funds. They typically have extensive experience in the stock market, including financial analysis and investing.
As a result of this expertise, they are responsible for making investment decisions that can impact the performance of the mutual fund.
Fund managers are responsible for a variety of tasks related to the mutual fund, including:
- Conducting research to stay informed about market trends and making informed investment decisions accordingly.
- Developing and implementing investment strategies.
- Ensuring compliance with legal requirements related to the stock market.
The Importance of Selecting a Skilled Fund Manager
What remains in the mutual fund investment is ultimately decided by a fund manager. The overall returns of the mutual fund may be significantly impacted by this choice.
They have total control over the corpus' capacity to generate long-term wealth thanks to their investing approach, knowledge, and research.
Strategies for Selecting the Right Fund Manager
The following factors should be your first focus when selecting a fund manager:
- The manager's education and professional background;
- The manager's fund performance, both historically and currently;
The manager's expertise and level of stock market knowledge may be indicated by their experience and credentials.
After deciding on a mutual fund to investigate and learn more about, an investor can find these fundamental details on the AMC website, which has a section specifically designed to introduce their expert team to prospective investors.
Check the historical returns of the funds they currently manage or have previously managed after learning about their experience.
The returns made by their funds over the same time period can be compared to help determine which fund manager is the best.
During a recession, one should also pay attention to fund returns. Investors will gain a better understanding of the fund manager's decision-making abilities by doing this.
For a more accurate comparison of risk-adjusted performance, many websites, including Moneycontrol and Investing.com, offer data on these returns as well as the measurement of performance ratios like the Sharpe ratio.
In addition, StockEdge has a section specifically devoted to fund managers in the Indian mutual fund sector. An investor can learn more about the manager's credentials and experience here, as well as follow the performance of the funds they are currently managing.
Knowing the various types of fund management
The most critical characteristic of a fund manager is their investment style, which we can eliminate after separating them based on their experience and credentials.
There are numerous styles that can be used to describe how a fund manager makes investments. Each approach is tailored to a particular risk tolerance and works best at a particular stage of the stock market's economic cycle.
Growth, Value, and Blend are the three main types of fund management styles. Let's examine them in greater detail.
1. Growth Style
As implied by the name, fund managers who invest with a growth style typically invest in accordance with a security's potential for growth, which they attribute to current and projected corporate earnings.
These managers opt to concentrate on businesses with high retained earnings, which suggest greater growth potential, and that are market leaders in the industries in which they are active.
This approach works best when the market shifts into a bullish phase because the successful stocks perform even better during this time. However, it is challenging for the manager to maintain returns during an economic downturn when the outlook is gloomy for all stocks.
2. Value Style
Profit is generated by investing in undervalued securities in this manner of investing.
When fund managers employ this strategy, they buy undervalued stocks at lower prices and hold them until their peak price.
This approach is based on the idea that security can be undervalued for a variety of reasons other than price, and as a result, they have the potential to hit a new high. The fund manager reaps the benefits of that growth.
The value style compensates for the growth style's shortcomings by operating best during bearish market conditions, though it can also function effectively during other market conditions.
3. Growth At Reasonable Price (GARP)
Combining both the growth and value styles, we have the GARP style.
The corpus will be invested by a fund manager using the GARP style in a select group of securities that have produced predictable returns.
To take advantage of the growth occurring in the sectors in accordance with the current stock market situation, the manager switches between various stocks from different sectors rather than selecting stocks from a benchmark index.
Does the fund manager use their own funds for investments?
When selecting a fund manager, many investors frequently think about whether the manager has made investments in their own fund or not.
Since their own money is on the line, the fund manager's investment in the fund demonstrates how confident they are in their own abilities.
The manager may not have invested for a variety of reasons, so this is not necessarily a disadvantage. For instance, a manager won't invest in their own fund if they personally favor a different approach to investing.
Choosing the best fund manager may seem difficult, but it becomes much easier when an investor establishes certain criteria, such as those listed in this blog.
The stock market experiences various cycles of bullish and bearish phases, and the fund management strategies change to reflect these cycles.
By selecting the best fund manager, an investor can make sure that their corpus will generate the greatest profits possible for the circumstances at hand.
Therefore, for a potential mutual fund investor, making this choice is crucial.
