Investing in Mutual funds comes with a lot of aspects and one of the most important being the management of the portfolio of stocks, bonds or be it any other asset class. The fund is either actively or passively managed by a ‘Fund Manager’. A fund manager is a key person who is solely responsible to manage and grow your investment. This, in turn, has an immense impact on the performance of the fund and your portfolio subsequently. However, it’s not necessary that the fund will be managed by only a single fund manager. It can be managed by one person or by two people as co-managers or by a team of three or more people.
Role of Fund Managers – Active and Passive Fund Managers
Investing in mutual funds involves building a portfolio of securities and fund managers play a pivotal role in achieving the same. Fund managers are instrumental in making decisions dealing with buying and selling. They come up with factual data based on research and analysis whether your portfolio is active or passive.
So, we can say that fund managers are further subdivided into two categories- Active Fund managers and passive fund managers. In the case of a passively managed portfolio, these decisions are based on an established index and the parts of it are selected with reference to the underlying index. On the other hand, if your portfolio is actively managed, the components of your portfolio are picked by the fund manager.
Responsibilities of Fund managers
As mentioned, the primary responsibilities of fund managers include researching the best stocks, bonds, and other securities to best align with the fund as described in the prospectus and buy and sell them subsequently. Apart from this, a fund manager is also responsible for some other duties as well such as:
Preparing reports for Potential Clients
It is one of the duties of a fund manager to design funds keeping in mind the reporting standards as per the regulatory guidelines. The structure of a fund entails objectives of the investors, the strategies, risk factors, expenses, and various policies. Fund managers are solely responsible for ensuring that the investors are well-aware of all the rules and should abide by them. Providing the documents on time and are congruent with the laws and regulations.
Aligning with the Regulatory Authorities
The funds should be operated in accordance with the rules framed by the governing body like the Securities and Exchange Board of India (SEBI) and other relevant authorities. Starting right from signing the clients to handling the redemption, these rules and regulations cover all aspects. In case of non-compliance, fund managers are the ones who are answerable to the legislators.
Track the Growth and Performance of the Funds
Fund managers are the ones who have to take the call of where to invest and this decision is taken based on the expectations and objectives of the investors. In fact, the capabilities of fund managers are judged by how well their funds perform and how they are delivering the growth that beats the interest and inflation rates.
Hiring and Outsourcing
Managing the funds extensively can sometimes make the fund managers seek assistance from various professionals and firms to get the delivery in a seamless way. Some duties like getting the annual reports done, managing to get capital, coordinating with brokers, etc. Are outsourced. This aid the fund manager to get some regulation related work done by the third party. However, in the end, it is the fund manager who is responsible for how the the funds perform.
Factors Defining a Good Fund Manager
An investor’s journey begins with the selection of the best scheme and the respective fund manager. So, it is imperative that you choose your manager wisely from a list of top fund managers and for that, there are certain factors that should be kept in mind. If you look at how experienced investors invest their money, you will notice that they pay heed to the manager and their fund management team. A good fund manager and an ordinary one can be differentiated by the following factors:
- How are the fund manager’s past records and has the fund manager succeeded to outperform the inflation and interest rates with the funds managed by him?
- Does the manager monitor other institutional investors’ (DII or FII) buying and selling of the stocks?
- l Do they have rich experience with good compensation?
How do Fund Managers Work – Path to Fund Management
One needs a very strong educational and professional background and appropriate investment experience to qualify for a position in fund management. Apart from rock-solid knowledge on the subject and far-sighted insights, fund managers solicit important data and insights from their research team. Some other tasks are:
a. Analyzing the volume of the shifts in the stock market
b. Detailed research about the competition in the industry by fund managers proves to instrumental in gauging the market scenario
c. Fund managers are also involved in a thorough analysis of the annual result of the companies they want to invest in
d. At last, all the above-mentioned points are clubbed to check with experienced top managers and directors before reaching to any conclusion
As an investor, you must thoroughly understand the investment style of the fund manager who is going to manage your funds. Not having the proper insights on picking the right fund or fund manager can take a toll on you later. Be it mutual funds, pension funds, trust funds or hedge funds, fund managers always play the most important role everywhere. At last, although, a mutual fund is a way to multiply your wealth and should not be concluded in the short run as investors have to go a long way to reap the benefits.