We all invest in mutual funds by looking at the risk associated with it, and how much returns it gives. Do you know about the person who manages the large amount of investors? Yes, we are talking about fund managers. In this article, we will discuss about the fund manager, their role in the AMC, their duties, and how to evaluate them.
A fund manager is an investment professional. A fund manager is in charge of carrying out a fund's investment strategy and monitoring its trading activities. They manage researchers, engage in research, and make important investment decisions for mutual funds.
A fund manager is responsible for managing the portfolio of schemes offered by the mutual fund. A fund manager manages the portfolio in an active or passive way.
Role of a fund manager
A fund manager is an investment professional who is appointed by an Asset Management Company(AMC) to manage one or more schemes offered by the fund house. The fund manager provides the best results to match the fund's goal. Later, they trade in securities that are appropriate and sell those that are not. Fund managers must dive deep into large financial data of traded companies. They conduct various research using a variety of tools and software platforms. The fund manager gathers the data, reads financial briefings, and stays up to date on current economic events.
The fund manager's role also involves meeting the industry experts and company personnel. They learn about the inner workings of the company whose stock they plan to invest in. They shortlist various companies that meet the investment objectives of the fund. After that, they trade on these stocks. In a multi-asset fund, there is a similar process for bonds, commodities, and other assets as well. A fund manager in a larger fund house may have a team of analysts. The analysts' research companies and a team of traders and dealers to execute buy and sell trades.
The fund managers prepare regular investor reports about the fund's portfolio composition. They also explain some of the major portfolio decisions that go with, and performance. A fund manager attends various events to explain their fund's strategy and represent their company in panel discussions. They aim to strengthen the brand appeal of the fund house and their managed funds in particular.
The key role of a fund manager is to manage the costs associated with administering and operating a fund. All portfolio composition decisions with an eye toward efficient cost management.
Fund managers are also responsible for liquidity and risk management. They must ensure that the fund has adequate liquidity. The assets in the fund's portfolio must be liquid enough to sell and without the loss in value, incase of redemption received from the investor.
Duties of a Fund Manager
1. Meeting the reporting requirements
The role of a fund manager is to design a fund portfolio keeping in mind the reporting standards. The fund must fulfil the objectives of the scheme, the strategies, risks, expenses, and various policies. The fund managers ensure that the investors are aware and abide by these details and rules. They also make sure that all the documents are furnished on time and follow the laws and regulations.
2. Complying with Regulatory Authorities
The operations of the funds must be in line with the rules set out by the Securities and Exchange Board of India. Fund managers are answerable to legislators and investors in case of non-compliance. They play a critical role along with the compliance team.
3. The Protection of Wealth
The fund managers have to protect the wealth of investors. The funds are subject to some risks and generate returns. But they must not be subjected to reckless risk assumptions. The decision of the fund manager to buy or sell assets will be on research and due diligence.
The fund manager also investigates the company. Uses risk management techniques to protect the wealth of the investors. The fund managers ensure the diversification in asset portfolios to address the risk
How to evaluate a Fund Manager?
After understanding about the fund manager’s role in the mutual fund industry, it is critical to learn how to test them. The fund manager develops an investment strategy that supports the fund's investment goal. A sound investment goal can fail due to poor strategic planning and execution.
There are several factors that investors can consider when evaluating a fund manager. These factors can provide valuable insight about the right fund manager or are simply fulfilling his or her mandate.
- Track Record: The fund manager states that past performance is not a predictor of future performance. The important factor is selecting a performing fund and a fund manager. Proving consistent performance depicts the experience and expertise of the fund manager. They navigate a fund portfolio through difficult times and also generate superior returns.
- Investing Style: Different fund managers will approach the same fund portfolio in different ways. This difference is due to their different investment styles.
- One fund manager may choose to invest for the long term, whereas another may choose to take several short-term positions in stocks and bonds.
- One manager may align the portfolio with the underlying benchmark. Another may completely go off with the benchmark composition and create a portfolio based on their market views.
- One manager may remain invested in the market all the time. Another may decide to liquidate a part of the portfolio and invest it in cash until he finds a suitable investment opportunity. Investors can examine the changes in the portfolio over the course of a fund manager's management of the fund. They may also seek the advice of an advisor to better understand the investment styles of a fund manager.
- Is the manager a shareholder in his own managed fund? This may appear to be a minor point, but it is crucial. A fund manager charges a fee to manage other people's money, but do they invest their own money in the fund they manage? If they do, it demonstrates their belief in their own stock picks. If their stock-picking abilities are excellent to outperform the market and multiply investors' money. Why wouldn't they want to enjoy that as well?
3. Outperforming the Benchmark Index: Each fund has a benchmark index against which it aims to outperform. If a fund manager outperforms the benchmark index, it may be worthwhile to invest with them. But it is critical to consider a manager's performance during market downturns. Because when markets are rising, many managers may outperform their benchmarks. They make it difficult to identify whether the market performance is due to luck or skill. Investors should prefer a skilled manager to one who is lucky.
How do Fund Managers decide where to invest?
As mentioned earlier in the article, one must work for several years as an analyst to take the responsibility of fund management. This experience is key for a budding manager to shape his market insight. And choosing the right investment given the market condition.
A fund manager deep dives into company fundamentals by creating or managing a stock portfolio. They look at quantitative metrics to create a sector and industry-wide list of companies that can fit the investment mandate of the fund.
They combine the company-specific information with the broad market trend in terms: such as
- Market movement direction
- Sector and industry-specific trends,
- The direction of the economy and fiscal and monetary policies,
- Foreign investor interest and money movement, and other factors.
A fund manager prepares a final selection of stocks in the portfolio based on his study. His past expertise analyses equities after considering the above factors.
A fund manager takes the help of an analyst team, reports their findings to an investment committee. The committee chooses the best investment avenues for a fund based on internal brainstorming.
Q. Does a fund manager change frequently?
A. No! The fund manager is the backbone of the strategy and philosophy of a scheme. A change in the fund manager may bring about a change in the investment methods and stock selection.
Q. Is A Fund Manager Answerable to Investors?
A. Yes. You can always reach out with your questions to the Investor Relations cell of the fund house. If you have query-specific questions reach out to the fund managers.