What role does a fund manager play in mutual funds?

You would see the smiling face of a fund manager if you had ever looked through a mutual funds scheme document. His qualifications and expertise are clearly summarized. Have you ever wondered why such information is so useful? As long as the scheme documents mention the key information about the fund, such as past returns, fund objective, stock selection criteria, etc, then it should be sufficient. Not quite true. As important as it is to understand the details of a mutual fund scheme, investors also need to be familiar with the role of the fund manager, the person who is responsible for directing the fund strategy. Let's first understand the role of a fund manager in mutual fund success. Continue reading!

What Role Does a Fund Manager Play

Let me use a simple analogy to explain the role of fund managers. Your mutual fund is like a large ship. The sea is the equity market. This ship's captain is the fund manager. The captain of the ship is responsible for guiding your capital towards safety and the ultimate goal of growth. How well the ship can survive the stormy sea depends on the decisions made by the captain, such as when to raise the sails and when you should drop the anchor.

This analogy will help you to understand the importance of a fund manager. A fund manager is someone who has the professional qualifications to keep an eye on the market, economic trends, and policies. These factors have an impact on stock markets. He tries to outperform the benchmark funds and other competitors in the market. Asset management companies rely on the track record and experience of fund managers to sell their funds.

Passively managed funds are managed by fund managers who invest in securities that match the index. Their role is less prominent than in actively managed funds where they attempt to beat the benchmark and take on additional risk to reward investors.

How does the fund manager manage risks?

Your mutual fund investments could be exposed to market risks, currency risks, and business risks. This includes currency risk, market risk, and business risk. The investor cannot control market risk. It is determined by macro factors like the economy, global crises, trends, politics, and policies, as well as micro factors. The industry and the companies are responsible for business risk.

There is an abundance of information on business risk available online, particularly for larger companies. You and I can also access this information and use it to invest in stock markets.

What about small- and medium-sized companies?

Through meetings/ discussions with top management, the fund manager learns about the business and plans of these companies. After evaluating their potential, a fund manager makes a decision to include these stocks in the portfolio. However, the goal is to provide the extra delta for investors by taking on more risk.

Assess risk and evaluate stocks the same way fund managers do.

We don't have the ability to access such information and we lack the knowledge and qualifications to make decisions based on both macro-and sector-related information.

With the help of a team of analysts and researchers, they monitor funds' performance and keep an eye on companies and markets. They take stock of the portfolio and then reallocate funds to companies that are likely to benefit investors over the long term.

You can also invest in feeder funds across the globe if you are going through a mutual fund. The fund manager has stock-specific and local information about those markets.

Do I need to redeem my mutual fund units if the manager of the fund quits?

This question is common among investors, and it's understandable. Although fund managers are vital, investors shouldn't panic if they leave. Redeeming a fund manager doesn't mean that you will be able to get your money back. Once a fund manager leaves, it is difficult to determine the impact that their departure has on the fund's performance. While there have been instances where a fund manager's departure has caused a decrease in performance, many times a new manager was able to significantly improve performance.

Keep an eye on the fund's performance after a fund manager leaves. Reevaluate your portfolio if the fund's performance starts to deteriorate. You should not base your investment decisions on short-term underperformance. Fluctuations in the market are not uncommon, but a well-managed fund is more likely to be successful over the long term.

A fund manager is a key player in the implementation of the strategy. He does his best to ensure both capital growth and protection. However, fund managers are not responsible for the fund's performance. They also have little or no control over market conditions. Do not redeem fund units in haste if a fund manager leaves. Before making redemption decisions, be patient and evaluate performance objectively.

Best Wishes for investing and Good Luck For The Future!