A fund manager is an investment expert that a mutual fund house employs to prudently invest the funds of all investors. This individual is responsible for doing careful market research, implementing investment strategies, managing investments and conducting trades.
If you are planning to invest in actively managed funds, you must know what is the role of a fund manager and how having one can benefit you. This post helps you get a detailed idea. Keep reading!
A fund manager is a professional investment manager who is responsible for all investment-related decisions. He/she is an indispensable asset to the fund house as they make major money decisions for the clients. They help strategize and plan to benefit the client to the maximum. Let’s take a look at their role in the following section.
Following are the primary duties of a fund manager:
Conducting proper research is an essential and fundamental role of a fund manager. They need to analyse macroeconomic conditions, the state of the stock market, shifts in markets, perform competitor analysis and examine the fundamentals of assets they have invested in. Fund managers take the help of various investment tools and software for such research.
After conducting thorough market research, the fund manager selects the best stocks, bonds or other financial instruments for a mutual fund. They make this decision based on the fund’s stated objective, investors’ expectations and applicable laws. They sell securities that do not belong in a fund’s portfolio and invest in new ones if needed.
Fund managers need to make sure that their investments deliver high returns while taking risks justified by the scheme’s objectives. That is why they regularly monitor a fund’s growth and performance and buy/sell securities to match the objectives.
The markets are unpredictable and subject mutual funds to certain risks. While some risks are unavoidable, a fund manager must safeguard his/her investors’ wealth and make sure not to overexpose investments. To control risks, fund managers may employ portfolio diversification, change asset allocation, conduct risk assessments, etc.
Mutual fund managers must work within the boundaries of government policies, investors’ interests and guidelines from regulators. Securities and Exchange Board of India (SEBI) regulated mutual funds in India. Fund managers must comply with all regulatory requirements for every area of an AMC’s business.
Fund managers also need to hire people to assist them on various matters like preparing annual reports, negotiating with brokers, etc. to be able to make the financial decision for their clients.
The following parameters will help you to choose the best fund manager:
An investor must know whether a portfolio manager has generated favourable returns over the past few years. Has the fund manager outperformed the benchmark consistently? How are the scheme’s returns across various market cycles? You can evaluate a portfolio manager’s performance through these questions.
An investor must know about a fund manager’s experience, qualifications and skills before taking the plunge. A well-experienced fund manager has already witnessed different market cycles and movements and understands how to handle adverse situations.
You can assess a portfolio manager on the basis of his/her investment style. Make sure to find out how a fund manager invests in funds. Investors can track whether the fund managers have an extensive cash balance or remain invested. Further, they can check if managers have unique investment strategies or imitate a benchmark portfolio.
Market research involves recognising favourable market opportunities and examining the patterns of other institutional players. Fund managers need to constantly track what the FIIs and DIIs are selling and buying to improve their funds’ performance.
An asset manager who can recognise an opportunity prior to the market has the potential to yield higher returns than others. So, go for the manager who can track shares ahead of his/her peers.
The following instances will make you understand how a fund manager decides where to invest:
Investing in mutual fund schemes managed by expert and well-informed fund managers can be profitable for investors. The investment strategies and expertise of these managers drive high returns for the investors. However, you must also consider the expense ratio, expertise and experience, the kind of funds they invest in and investment behaviour and other factors before choosing your portfolio manager. Visit Navi Mutual Fund to start investing today!
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Ans: No, an Asset Management Company’s portfolio manager does not change often. He/she is the backbone of the strategy of a mutual fund scheme. If a fund manager changes, investment patterns and stock selection will also change.
Ans: Yes, portfolio managers are well-connected with investors. Fund houses have their own client relations cells, through which investors can ask questions and solve their queries related to the relevant mutual fund schemes. After all, fund managers are responsible for risk and liquidity management.
Ans: Fund managers identify assets and invest accordingly. Besides, they and their teams prepare periodic reports. These reports comprise information related to a fund’s performance and portfolio construction. Most investors choose mutual funds after gaining adequate knowledge about a fund manager’s expertise.
Ans: Yes, portfolio managers are responsible for managing the administrative and operating costs of a mutual fund scheme. Their investment decisions are highly dependent on these costs. In addition, they ensure substantial liquidity in a scheme.
Ans: Best fund managers impose reasonable fees for the management of a mutual fund scheme. Expense ratios for mutual funds are comparatively lower than charges of PMS (Portfolio Management Schemes). An expense ratio directly affects the returns of an investor. A high expense ratio minimises returns. However, the best managers justify these expenses with their stellar performance.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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