How To Cope With Fund Manager Exit?

The performance of an actively managed mutual fund largely depends on the fund manager. Therefore, the news of a fund manager exiting a mutual fund is likely to cause some nervousness among investors. In case a fund manager quits, consider the following factors before taking a call on your investments.

Role of a fund manager

Among the many responsibilities of a fund manager, an investor should know the following important roles:

• Meeting the reporting standards

A fund manager ensures that the investors are well-informed about the objectives, investment strategies, risks and expenses of the fund. The manager must adhere to these reporting standards along with ensuring proper documentation.

• Regulatory compliance

Mutual funds require complying with the rules and regulations set by government bodies such as the Securities and Exchange Board of India (SEBI). A fund manager ensures adherence to these regulatory compliances.

• Fund growth and performance

A fund manager decides investment strategies, areas and avenues of investments and the amount of risk exposure for the fund. Hence, the fund manager is largely responsible for the growth and protection of the investors’ wealth.

Reason and potential impact of a fund manager’s exit

Generally, the media cover the news of the fund manager’s exit from a mutual fund house. A fund manager can exit a fund for various reasons.

• Better opportunity or retirement

A fund manager can switch jobs for better opportunities with a different fund house. Alternatively, they may simply be retiring. In both cases, you should closely watch the appointment of the new fund manager.

• In-house promotion

A fund manager can be promoted in the same mutual fund house because of their performance.

In such a scenario, you need not worry as the person is likely to stay involved in the management and operations of the fund. Also, the outgoing fund manager is likely to be involved in the appointment of the new fund manager to help in a smooth transition process.

• Management decision

The management may change the fund manager due to various reasons. It is not necessarily a cause of alarm. The decision to change a fund manager is taken after considering several factors.

Whether to stay invested or leave?

The following parameters could you in your decision-making.

• Investment strategies

Check out whether the investment strategies have changed since the previous manager left. If yes, see whether they are still aligned with your goals and objectives.

• Credentials of the new manager

            Consider the experience, qualification and past performance of the new manager.

• Fund performance

Monitor the fund’s performance under the new manager. Track vital parameters like Net Asset Value, Turnover Ratio, etc. and compare them with other funds in the same segment.

Refrain from jumping to conclusions

The investment and management acumen of a fund manager contributes significantly toward generating a healthy return on investments for a fund. Hence, the exit of a fund manager is likely to affect the fund performance.

Having said so, change is not necessarily bad. Sometimes, it is in the best interest of the investors to have a change in the investment strategy and a new fund manager could help in achieving the desired objectives.

There are plenty of examples where new fund managers outperformed their predecessors by providing higher rates of return and delighting their investors.