Should You Bet on Mutual Funds or Funds’ Jockey?
In a horse race, jockeys are known to offer an important role in giving the horse an opportunity to win. Similarly, in the mutual fund industry, the fund managers act as a jockey and the horses are the funds. As each horse has its own weaknesses and strengths where some like to lead, others sit in the pack, some are comfortable with contact and pushing through small gaps, whereas some need to be ridden out hard and hold on to the line. It is actually the work of a good jockey to know how much energy the horse has and push them right to the limit.
Investors here are compared to the people in the stand who bet their money on the race, here the smarter ones will bet on the jockey, whereas the others will go for the horse. It is strongly believed that the real performance or output of a race of any mutual fund is determined from the fund managers’ investment strategy. The good ones know how to manage the fund according to the market movements. Let’s understand this concept more clearly and find out what more you should look for and other related facts!
Table of Content
Role of the Jockey in Mutual Funds
When you choose to invest in a scheme, it basically involves building a portfolio of securities. It is the role of the fund manager or the jockey to research and analyze and make decisions pertaining to selling and buying. Especially in the case of actively managed mutual funds, the fund managers select the components of the portfolio, and thus they play a decisive role in the performance of such schemes. They play vital roles which directly impact how the fund performs in the future. This includes monitoring the growth and performance, oversight, protecting the wealth of the investors, etc.
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Funds or Fund Managers? Where to Bet on?
Considering the above-mentioned information, it is very clear that it is not the fund but the fund manager’s moves which make a fund to win in a particular market condition. The answers that are discussed in the coming blog will help you make the best bet decision.
What Are the Evaluation Parameters of a Good Jockey-cum-Fund Manager?
The fund managers are quite critical when it comes to selecting funds and checking their performance; therefore it is important that an investor considers certain points when it comes to picking up an ideal fund manager. The prudent ones pay attention to the manager and their fund management team. One can differentiate between a good fund manager and an average one by analyzing the below-listed factors:
- Has the fund manager made to offer exceptional returns than the benchmark in perpetuity?
- Do the schemes’ managers keep track of the other institutional investors’ buying and selling of stocks as well?
- Are the fund managers adequately experienced with a high compensation?
- Are they able to identify scripts way ahead of their peers?
Also read: Know the top five fund managers and their investment strategy
How Do Fund Managers decide Where to Invest in a Fund?
The fund managers who are associated with these big asset management companies have comprehensive knowledge of the subject and far-reaching insights which help them to manage crores of rupees of the investors. They gather valuable insights from their research team as well where they use some consideration points. These are:
- They undergo various shifts that take place in the stock market to analyze the volume of the fluctuations.
- They even study the competitors in the industry which plays an important role in gauging the macroeconomic outlook.
- A thorough analysis is also done by them of the annual results of the companies where they intend to invest in.
- In the final step, all the collected above-listed information is weighted along with the experience of the top managers and directors before making the final investment decision on fund managers’ behalf.
Also Read: Here’s where your fund manager is investing all your money
Is Change in Fund Manager a Good Reason to Exit from Investment?
Well, after all the constructive discussion concerning the importance of fund manager in investment, the answer that you must be expecting to the above question would be a yes. However, if you go with our experts, then it is a big No.
The change of fund manager of any particular scheme that you’re investing in should not be the sole reason to switch or redeem from it to another. There are other vital factors such as the expense ratio of a fund and composition of the portfolio that a fund holds which are significant factors that can directly impact on the returns of the scheme.
All such information is circulated to each investor through Scheme Information Document (SID) and Key Information Memorandum (KIM) provided by the respective fund houses, which undergo appropriate revision in a timely manner. In case of any change in the portfolio, the investor should read and understand the information mentioned in the documents.
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The Final Take
We all have heard the prominent disclaimer associated with mutual funds, ‘Investment in mutual funds is subject to market risk.’ Thus, being an investor, if you do not have the insights to choose the right fund or the fund manager, then it can lead to a severe monetary loss. That’s why, we, at MySIPonline, always make an effort to simplify this for you by offering regular fund’s recommendation that can help you meet your investment goals and objectives. The lumpsum and SIP plans suggestion that we provide are checked for assurance that the funds are being managed by the top fund managers in the country.