How to choose the right Fund Manager – Basic criteria
A mutual fund is a collection of securities managed by a financial expert. Mutual funds are the most preferred investment method across all types of investors due to a variety of benefits.
However, many investors neglect an essential decision they should make when selecting the best mutual fund: selecting the finest fund manager.
In this blog, we’ll talk about how important it is to pick the correct fund manager before investing in any fund.
Who is a Fund Manager?
A fund manager is a finance-oriented expert who is hired to manage a mutual fund by an Asset Management Company (AMC). When it comes to financial analysis and investing, a fund manager generally has several years of experience in the stock market.
They are in charge of a variety of areas of the mutual fund, including –
- Analyzing the stock market’s trends, movement, and patterns, and investing accordingly.
- The investment strategy to use
- Assuring that all legal requirements relating to the stock market are met, and so forth.
Why is it Important to select the Best Fund Manager?
A Fund manager is a person who makes the final decision about what stays in mutual fund investment. This decision has a significant impact on the mutual fund’s overall results.
They have entire control over the corpus and its ability to build long-term wealth thanks to their investing style, experience, and research.
The basic criterion for selecting the right fund manager
The best way to find the right fund manager is to start with the following criteria:
Experience and educational credentials of the manager;
The manager’s history and present performance of the funds he manages;
The manager’s experience and qualifications might reveal their level of knowledge and understanding of the stock market.
After deciding on a mutual fund to analyze and research, an investor can find these fundamental details on AMC’s website, which includes a part dedicated to introducing their expert team to potential investors.
After knowing about their background, it’s a good idea to look into the performance of the funds they presently manage or have previously handled.
To compare fund managers, look at the returns their funds generated over the same time period.
During a downturn in the economy, one should also pay attention to fund returns. This will assist investors in determining whether the fund management is capable of making judgments that will maximize returns at such a time. Also read: What Are Bonus Shares- Eligibility Criteria & Benefit
Understanding the many types of fund management:
We arrive at the most essential quality of a fund manager – their investment style – after screening out fund managers based on their experience and qualifications.
A fund manager’s investment approach can be classified into a variety of categories. Each style caters to a specific risk appetite and is best suited to a specific period in the stock market’s economic cycle.
Fund management styles are divided into three categories: growth, value, and blend. Let’s take a closer look at them.
- Growth Patterns
Growth-style fund managers, as the name implies, invest based on the security’s potential for growth, which they attribute to present and future corporate earnings.
These executives prefer to invest in companies that are market leaders in their respective industries and have high retained earnings, indicating greater growth potential.
This strategy works best when the market is in a bullish phase, as these profitable stocks perform even better during this time. However, it is difficult for management to maintain returns throughout a downward economic cycle when the situation is bleak for all stocks.
- Value Style
This method of investing makes money by purchasing undervalued securities.
This strategy involves fund managers buying undervalued stocks at lower levels and holding them until they reach their peak price.
This strategy is based on the idea that security can be undervalued for a variety of factors other than price, and as a result, it has the potential to hit new highs. The fund manager reaps the benefits of that growth.
The value style compensates for what the growth style lacks: the system performs best when the stock market is in a bearish phase, but it can also perform well in other market conditions.
- Growth at a Reasonable Price (GARP)
The GARP style is a hybrid of growth and value investing.
A fund manager that invests in the GARP strategy will put the money into a small number of securities that have provided consistent returns.
Instead of picking companies from a benchmark index, the manager shuffles between various firms from various sectors to take advantage of the present stock market situation’s growth in those sectors.