‘Fund Manager’ is a fantastic title! Fund managers are the group who always walking with incomparable burden on their shoulder which coming from investors hope. A fund manager can easily make any investor king or convert as beggars. Mutual fund houses generally have a pool of well qualified and experienced fund managers. They are responsible to manage investor’s money by investing them intelligently on various instruments to generate maximum returns. If any fund manager fails to do such, or fail to meet the hope of investors, he is not only losing investor’s trust, but also ruining the reputation of fund house.
Building a reputation as a great fund manager is not as easy as we think. It required extra ordinary skills. A fund manager should have some must qualities and able to work under enormous pressure. Those who have invested or showing interest on mutual fund products, must know the major risks associated to their investments. If she ever went through the document associated with a mutual fund, may saw the section ‘Risks’. In this section, investors get informed with all possible risks associated with that particular mutual fund product. If you read little, you may see a term called ‘Fund Manager Risk’ in the line. Generally, most of us never pay much attention to it and ignore this term as a usual one in all mutual fund documents. But dear investor, this is the only term in that mutual fund document, can decide whether you are going to get returns from your investments or be a beggar later!!In this contest, here are some most important points for investors to identify and avoid possible money losing risks by knowing the fund manager capability and disadvantages maximum as possible. Remember, analyzing a fund manager capability and capacity is not so easy. But same time, you can have access to all the information if you really work for it.Lots of factors influencing to decide the risk associated to a Fund manager. Personal qualities and organizational policies are the most important two factors among it. Below are some most important factors which can decide ‘the level of risk’ associated with your fund manager:
1. QualificationTo introduce himself to the market as a right fund manager, one must obtain the qualifications required to be a fund manager as per the rule in the country. Obtaining such qualification ensures he/she is well aware about the job and the seriousness. Any fund manager who doesn’t have such required, recognized qualification, is not the right one to manage investors money.
Investor Home work: Identify the qualification criteria for mutual fund managers or investment managers as per the law of the country and confirm your manager have such qualifications.
2. Lack of Experience
Any person directly being a fund manager holds risk than an experienced fund manager. Experience is the best master for all. Having sufficient experience will shape a person to identify and avoid maximum possible errors that may lose investor’s money.
Investor Home Work: Identify the background of your fund manager. Get information on the companies he had worked earlier and duration in each company.
3. Trading Focused
Trading focused Fund Manager is a curse for investors. Trading is nothing than gambling and any one can do it. There is no need to have a fund manager to do trading. This is the most dangerous factor associated with a very bad Fund Manager and investors should avoid investing on funds he manages.
Investor Home Work: Monitor the investment portfolio and identify the frequency of changes happening to it. It may help investors how frequently a fund manager churning out his portfolio.
4. Over Confidence
Over confidence always leads to trouble. A person with over confidence generally not gives his ears to any one even if he is doing mistakes.
Investor Home Work: No perfect sources are there at present to identify how confident your fund manager is. Get information on previous funds he had managed and its performance.
5. Over Diversification
Any fund manager interested to manage large number of stocks in his portfolio adding extra risks to investor’s money. Including large qualtity of scrips make any portfolio as unmanageable.
Investors Home Work: Get the information of stock portfolio associated with the fund you are planning to invest. Identify the number of stocks in it. Generally a number between 30 to 40 comprising large, mid, small cap stocks and each from various sectors would do good.
6. Less Diversification
Less diversification also dangerous like over diversification. Less diversified portfolio is easy to manage but, sectorial risks always exist.
Investors Home Work: Can do the home work done for identifying portfolio allocation with point 5 above.
7. Respect on Investors
Those fund managers who not respecting investors as well, is an another curse for investors. If he not respects investors feelings generally don’t have any ethics and manage money as his mind says.
Investors Home Work: There is no option to identify this risk associated to the fund manager other than meet him directly and learn from his mouth itself.
8. Internal Competitions
Excess than controlable Internal competitions between fund managers inside a company cause lose of investors money. The good news is, it is not always happening but still exisits in some place. Performanance based competitions can some time convert a good fund manager to trading based activities.
Investors presently have no option to find this error.
9. Fund Manager Benefits
Company provided benefits to Fund Managers may some time influenced to the performance of a manager.
Investor Home Work: Sudden drop in the performance of multiple funds that a fund manager managing.
10. Number of portfolio
In my experience, I have found most of the fund managers handling multiple investment portfolios for the fund house. Also I have found, most of the time a single portfolio will perform well and all others seems laggards. This is highly dangerous by not getting right attention to all the portfolios.
Investor Home Work: Remember ti understand how many portfolios a fund manager presently managing. If you contact the fund house, you will get access to such data easily. Never invest on mutual funds managing by any fund manager who are responsible for more than 2 portfolios.
Above are the 10 possible factors one can analyze to identify a fund manager risk. Through background analysis of any fund manager greatly help you to get details information on his performance and style.