27 March 2017

// // Leave a Comment

How to Find Best Mutual Fund Managers

how to find best mutual funds
Fund Manager' is a fantastic title! Fund managers are the group who always taking incomparable burden on their shoulder which comes from investors hope. A fund manager  can make an investor a king or  beggar. Mutual fund houses generally have a pool of well qualified and experienced fund managers. They are responsible to manage different funds were investor’s putting their  money by trusting the fund manager to invest them intelligently on various instruments to generate maximum returns for the investors. If the fund manager fails to meet their expectations, he is not only losing investor’s trust, but also ruining the reputation of the fund house and his own reputation as a fund manager.

Building a reputation as a great fund manager is not an easy task. Fund managers should have  some special qualities and would be able to work under enormous pressure. One of the must looking point to identify the suitability of a mutual fund to invest is, the efficiency and capability of the fund manager.  This is generally termed as 'Fund Manager Risk'.

How a mutual fund investor can identify how well the fund manager performing and what all are the qualities and competencies of a fund manager?

Below are some most important factors, can decide ‘the level of risk’ associated with your fund manager:

1. Qualification

To introduce himself to the market as a right fund manager, one must obtain necessary qualifications set by the relevant authority to become a qualified fund manager. Obtaining such qualification ensures he/she is equipped with necessary knowledge in his or her domain to do the assigned job with superior responsibility. Any fund manager who doesn’t have must required, recognized qualification, is not the right one to manage investors money.

Investor Home work: Identify the qualification criteria  set for mutual fund managers or investment managers by the authority and confirm your fund manager have those qualifications and approvals.

2. Lack of Experience

Lack of experience as a fund manager is always a risk factor. Experience is the best master. Having sufficient experience would shape a person to proactively identify and avoid critical errors that may impact the investors badly.

Investor Home Work: Identify the background of your fund manager. Get information on the companies he had worked earlier and duration in each company. Check the status of funds the manager managed earlier.

3. Trading Focused

Trading in stock market is a severe mistake. Some fund managers are trading minded. Trading is nothing but similar to gambling. There is no need to have a fund manager to do trading. This is the most dangerous factor associated with a very bad Fund Managers and investors should avoid investing such funds.

Investor Home Work: Monitor the investment portfolio and identify the frequency of changes especially addition and selling of stocks or instruments happening in it. It may help investors to identify the investing style of the fund manager.

4. Over Confidence

Over confidence always leads to trouble. A fund manager with over confidence nature generally not gives his ears to any one even at the time he is doing mistakes.

Investor Home Work: No perfect sources are there at present to identify how confident your fund manager is. Get information on previous funds he had managed and its performance.

5. Over Diversification

Any fund manager interested to manage large number of stocks in his portfolio adding extra risks to investor’s money. Including large quality of scrips make any portfolio as unmanageable.

Investors Home Work: Get the information of stock portfolio associated with the fund you are planning to invest. Identify the number of stocks in it. Generally a number between 30 to 40 comprising large, mid, small cap stocks and each from various sectors would do good. Comparing the fund with few of other best performing funds in the market would help you to understand the portfolio better.

6. Less Diversification

Less diversification also dangerous like over diversification. Less diversified portfolio is easy to manage but, sectoral risks always exist.

Investors Home Work: Can do the home work done for identifying portfolio allocation with point 5 above.

7. Respect on Investors

Those fund managers who not respecting investors as well, is an another curse for investors. If he not respect investors feelings generally don’t have any ethics and manage money as his mind says.

Investors Home Work: There is no option to identify this risk associated to the fund manager other than meet him directly and learn from his mouth itself.

8. Internal Competitions

Excess than controllable Internal competitions between fund managers inside a company cause lose of investors money. The good news is, it is not always happening but still exists in some places. Performance based competitions can some time convert a good fund manager to trading based activities.

Investors do not have any option to find this error. Focus on news about/from the fund house.

9. Fund Manager Benefits

Company provided benefits to Fund Managers may some time influenced to the performance of a manager.

Investor Home Work: Sudden drop in the performance of multiple funds that a fund manager managing.

10. Number of portfolio

In my experience, I have found most of the fund managers handling multiple investment portfolios for the fund house. Also I have found, most of the time a single portfolio will perform well and all others seems laggards. This is highly dangerous by not getting right attention to all the portfolios.

Investor Home Work: Remember ti understand how many portfolios a fund manager presently managing. If you contact the fund house, you will get access to such data easily. Never invest on mutual funds managing by any fund manager who are responsible for more than 2 portfolios.

Above are the 10 possible factors one can analyze to identify a fund manager risk. Through background analysis of any fund manager greatly help you to get details information on his performance and style.