A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities and that’s why it becomes essential to check the credentials and past performance of a fund manager.
While many investors’ often get impressed seeing more number of schemes managed by the fund manager (of a respective fund house); this is rather worrisome since it reflects the pressure on the fund manager while managing investors’ hard earned money. It may so happen that he may simply replicate the portfolio, and in the bargain defeat the unique mandate of each scheme managed by him. In our view, ideally, a fund manager should not be managing more than 5 schemes; as such a “funds-to-fund manager ratio” can help in bringing in efficiency while managing your hard earned money.
Also one should not merely invest in a respective mutual fund scheme of a fund house, just because it is managed by a star fund manager. Many mutual fund distributors / agents / relationship managers may persuade you to invest in mutual fund scheme managed by a star fund manager; but then you need to ask relevant questions on track record of performance of all the mutual fund schemes managed by the star fund manager (which your mutual fund distributor / agent / relationship manager has high regards), where you need to check the following:
- Returns of the respective mutual fund schemes
- Risk that investors are exposed to (as revealed by the Standard Deviation)
- Risk- adjusted returns achieved by the fund (as revealed by the Sharpe Ratio)
- Portfolio churning (as revealed by the Portfolio Turnover Ratio)
Moreover, as a litmus test you also need to ascertain how the respective mutual fund schemes managed by the star fund manager has sailed during various market cycles (i.e. during bullish and bearish cycle)
To know more about which other factors needs to be considered before investing in any mutual fund CLICK HERE