Few would dispute the importance of a fund manager when it comes to a mutual fund scheme. He is responsible for managing investors' monies and plays a vital role in aiding the fund accomplish its stated investment objectives.
So what happens when this individual calls it a day? How does it impact the fund and can investors do something to insulate themselves from such a scenario? This issue has been raised because we have witnessed a significant 'churn' in fund managers in recent times.
And in some cases, we believe that the investor's interest was compromised with.
A case in point is a recent diversified equity fund new fund offer (NFO) from a public sector fund house. A 'star' fund manager from the fund house was at the forefront in road shows for the fund's promotion; he was also the designated fund manager for the scheme.
The NFO raked in record inflows (over Rs 20 billion), a fact which the fund house gleefully flaunted. However, even before the scheme opened for re-purchase, news of the star fund manager putting in his papers started floating in the mutual fund industry.
Eventually the news was confirmed. The fund house has now brought in a replacement for the fund manager.
While it would not be possible to predict how/if the above chain of events will impact the fund's fortunes, some investors (who participated in the NFO) would be justified in feeling that they were given a raw deal. The fund house raised the monies using the star fund manager and the performance history of schemes managed by him. A different fund manager handling their monies is certainly not what they bargained for.
Critics might point out that a fund manager's exit is always a plausible eventuality and pointing fingers at the fund in question is inappropriate.
However there are two factors which make this situation a unique one. Firstly, the time when the fund manager chose to exit the fund house i.e. immediately after the NFO period. Secondly, the magnitude of monies mobilised by the fund house.
Will the regulators look into such matters and incorporate necessary amendments to regulations? We strongly believe that they should do so in the investor's interest.
Also investors on their part need to be smarter while making investment decisions. At Personalfn, we have always been strong advocators of investing with the fund house rather then the fund manager. We have consistently voted in favour of process-driven fund houses rather than individual-driven ones.
Look for fund houses which have strong processes and are led by teams as against individuals. This will ensure that in case a fund manager was to leave, the investor will not suffer. Similarly investors should seek fund houses which are committed to being there for the long term.
It should be understood that we are not trying to undermine the fund manager's importance. Even in a fund house which is process and team-driven, the fund managers have an important role to play.
However, the key lies in striking a balance between the two, i.e. the fund house and the fund manager, and ensuring that the fund manager doesn't take precedence over the fund house.
As regards identifying an appropriate fund house, this is an area where your investment advisor should step in and help you make the right choice.
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