What are some of the key factors that an investor looks for while selecting a mutual fund? While factors like fund objective, past performance, asset allocation, etc, are crucial, fund manager details also account for due importance. A fund manager is a person responsible for navigating the fund in times of boom as well as recession to ultimately meet the fund goals in the most efficient manner. So what happens when this fund manager is no longer part of the fund? Does that mean the investors should exit from the fund and look for better alternatives for investment? The answer to these qualities and the importance of a fund manager are highlighted in this discussion below.
Who is a fund manager?
Let us start with the basic question as to who this fund manager is. A fund manager is a person in charge of the various investments of the fund and its asset allocation. He is also responsible to tweak the exposure of the fund in the changing market conditions to meet the ultimate goal of maximizing the investors’ wealth. A fund manager, therefore, needs to be highly qualified with good expertise and experience to understand the nuances of the market as well as different asset classes to understand their reaction to market trends as well as understand the compliance requirements of various authorities like SEBI, Income Tax Department, RBI, etc. A fund manager has a huge team of experts at their disposal that can continually monitor the changing market scenario and help the fund manager in making better and informed investment decisions.
Read More : How to select a mutual fund?
Why is a fund manager important?
Fund managers are an important part of the fund whether such a fund is actively managed or passively managed. In the case of an actively managed fund, the fund manager is directly responsible for outperforming the benchmark and boosting wealth creation for the investors. In the case of passive funds, the fund managers do not actively tweak the fund as per changing market trends but are responsible to ensure that the returns from the fund are meeting the benchmark and the possibility of tracking errors is greatly reduced.
Fund managers are responsible for monitoring the performance of the fund, ensuring that the necessary and mandatory compliance with regulations is met, and ensuring that the assets of the fund meet the core objectives and are in line with the risk-return perception of the fund as a whole and that of the investors.
Do investors need to exit the fund if the fund manager exits?
There can be multiple fund managers for a single mutual fund. Therefore, when the fund manager makes an exit from a fund, the confidence of the investors can be shaken in the future performance of the fund, especially, if the fund is an established one and the fund manager is the driving force behind shaping the fund to its current level.
At such a juncture, investors have to evaluate if the exit of the fund manager has rendered a drastic change in the core values of the fund and its ability to generate returns for the investors. It is ideal to wait to analyze the performance of the fund in the coming months or a couple of quarters to evaluate if the fund manager’s exit has been detrimental to the interest of the investors. Also, the strategies adopted by the new fund manager and the asset allocation may no longer be in line with the expectations of the investors. This will prompt the investors to move away from the fund and look for alternate investment options along with cases like falling fund performance as compared to its peers and the industry standards.
Prashant Jain’s exit and what it means for HDFC AMC?
Recently, HDFC AMC saw the exit of its key fund manager Mr. Prashant Jain. Mr. Jain was the CIO of HDFC Mutual Funds and was with the organization for a period of 19 years. He has the merit of being the first Indian fund manager to manage equity assets worth more than Rs.1 trillion across four funds managed by him. He managed funds like HDFC Balanced Advantage Fund, HDFC Flexicap Fund, HDFC Top 100, HDFC Mid-Cap Opportunities Fund, etc.
The news of Mr. Jain’s exit has had mixed reactions from the market. Post the exit of Mr. Jain, HDFC Mutual Funds has already appointed multiple fund managers to divide his responsibilities. Mr. Chirag Setalvad will be heading all the equity funds of the AMC. Mr. Shobhit Mehrotra on the other hand will be taking charge of all the fixed income funds of the AMC. The top three funds of HDFC Mutual Funds will be handled by the following new fund managers
- HDFC Flexicap Fund will be headed by Ms. Roshi Jain. She is part of HDFC Mutual Funds since December 2021.
- HDFC Balanced Advantage Fund will be headed by Mr. Gopal Agrawal along with HDFC Mid-Cap and Large-Cap fund. Mr. Anil Bamboli and Mr. Srinivas Ramamurthy will also be responsible for HDFC Balanced Advantage Fund.
- HDFC Top 100 fund will be headed by Mr. Rahul Bijal.
Industry experts believe that while Mr. Prashant Jain’s presence in HDFC Mutual Funds was paramount, his exit should not spook the investors. The majority of the funds under the AMC are principle-based funds. Therefore, they are no longer classified as solely fund manager driven funds. Also, a large AMC like HDFC will have plans in place for replacement when the time comes to ensure the continuity of the fund and no damage to the investors’ interest.
Fund managers’ presence and their experiences instill confidence in the investors regarding the progress of the fund and ultimately an increase in their own wealth. Therefore, fund managers’ exit cannot be taken lightly. However, it is also true that it cannot be the sole reason for the investors to lose faith in the fund’s performance unless proven otherwise.
Yes, the expense ratio of the fund accounts for the fund manager’s fees.
Yes. In many AMCs, a single fund manager is in charge of multiple mutual funds and ultimately their performance.
A fund manager’s exit from the fund can be due to a number of reasons. However, the immediate reaction to such exit should not be loss of trust in the fund’s performance. It is prudent to wait for a few market cycles to analyse the current fund manager’s strategies and results of the same on the performance of the fund.
If the fund manager is found to have performed any actions that are detrimental to the interest of the fund and the investors, or if they are part of any fraud or misappropriation of funds, or violation of any other guidelines of the AMC, such fund manager can be terminated after due diligence and allowing them an opportunity to be heard.