If a scheme’s performance is significantly hit after an exit, maybe it’s time to change.
While fund houses sell their schemes to potential investors on the basis of past performance, seldom does an investor look at the fact sheet to see the fund manager's name. But, investing heads of companies always take note of the name.
For instance, Jayant Pai, vice-president at Parag Parikh Financial Advisory Services, is concerned as a senior fund manager of a fund in which Pai's firm has invested clients' money has left. "We are not sure if the new manager can live up to the expectations. Before taking a call, we will wait for the next two to three months and see how the new manager fares and what his stock-picking philosophy and investment style are."
| CHECKLIST What should you do when your fund manager leaves? |
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Most mutual fund investors put their money in a scheme on the basis of its past performance or because of its brand name. However, the person behind the success or failure of the fund - the fund manager - is hardly known. Investment decisions, which stocks are to be included in a fund, weightage to be given to each scrip in the fund, etc are taken by the fund manager. It is his/her ability to spot money-making opportunities and multi-baggers that a fund builds its reputation on.
One of the many risks involved in investing in mutual funds is change of fund manager(s). Since the beginning of this year, at least 15 fund managers have switched jobs. Industry experts say, given the number of fund houses in India, there is a shortage of proven fund managers. But, should you fret if your fund manger switches jobs? It may not be easy to figure out quantitatively how much of an impact it has had on any fund till now.
A senior fund manager who recently changed his fund house says stock picking is the trick behind the business. Each fund manager has a different style and skillset to do it. "Investors should see if the new fund manager's investment style matches and is in sync with their investment goals. A call on whether one should continue with the fund or follow the fund manager should be taken after that," he advises.
All equity funds are managed with an investment mandate, institutional parentage and market conditions. There have even been cases when a manager's exit has led to a slump in a fund's performance. At other times, a new manager has proved to be better than the old one.
When the news of a fund manager leaving a particular fund starts doing the rounds, that particular scheme is kept under review, says Vicky Mehta, senior research analyst at Morningstar. "We look at the new fund manager's working style and if he follows the same investment principles as his predecessor in making any decision."
So, when you hear that your fund manager has changed, being vigilant in monitoring the fund's movement is the best way to stay on top of the situation. Dhirendra Kumar, CEO, Value Research, says when a fund manager leaves, you may not always need to follow him/her. "It depends on where the fund manager is going and if he is allowed to work with the same principles as he did in the previous organisation." If the outgoing fund manager has been with the fund for long (over five years), it's best to be watchful, Kumar suggests.
A fund manager's ability also depends on the period of the markets. Say, a fund manager had taken over a fund in 2008. He would have taken time to perform, as the markets were sliding back then. Hence, comparing fund managers by looking at their performance on a standalone basis over different periods may not be fair.
However, if one were to compare one manager's returns to the average returns of other funds in the category, and similarly look at his successor's results, one would have a fairly good idea as to how the new manager is faring. Also, keeping track of your old fund manager's performance at the new fund house, and comparing the two, if in the same investing category, could help you choose better.
