Making investments can be complex. However, mutual funds seem like a safe and simple option. While most investors have a basic understanding of how mutual funds work, they may not comprehensively understand the role of fund managers in mutual funds.
Fund managers are the driving force behind mutual funds, responsible for making investment decisions, managing risk and ultimately delivering returns to investors.
In this article, we explore the role of fund managers in mutual funds and their impact on the performance of these investment vehicles.
Who maintains the funds?
A fund manager is a person in charge of managing the investment plan of a fund and monitoring trading activities in the portfolio. Depending on the terms of the agreement, fund managers are frequently paid a percentage of the assets under management (AUM) and a portion of the profits generated.
Essential obligations for fund managers
The primary responsibilities of a fund manager are:
-
To carry out market analysis
A fundamental role of a fund manager in a mutual fund is to conduct comprehensive studies. They have to evaluate the macroeconomic environment, the stock market's condition, market changes, on-par analyses and the fundamentals of their investment. For this type of research, managers of funds use various data and analytical softwares and tools.
-
Select the right assets
After extensive market research, the fund manager selects the finest stocks, bonds, or other investment vehicles for the mutual fund. They base their decision on the fund's stated goal, the investors' desires and any other relevant requirements. They dispose of assets that have no place in a fund's portfolio and if required, invest in new assets.
-
Monitor the performance of the fund
The role of fund managers is to guarantee that their assets provide strong returns while taking calculated risks to achieve the scheme's goals. For this, fund managers regularly verify a fund's development, performance, gain and sell securities according to their goals.
-
Guard the assets for investors
Due to the unpredictability of the markets, mutual funds are subject to certain risks. While some risks cannot be avoided, a fund manager is obligated to protect the investors' money and watch for signs of over-exposure. Fund managers may diversify their portfolios, alter their asset allocation, conduct risk evaluations, and other risk management methods to secure the funds as much as possible.
-
Follow regulator rules
Mutual fund managers must function within the bounds of governmental directives, investor interests and regulatory requirements. For every aspect of an AMC's business, fund managers must adhere to all legal rules and regulations. In India, all mutual funds are governed by the Securities and Exchange Board of India (SEBI).
-
Hiring and oversight
To make the best financial decision for their clients, fund managers often also need to hire people to help them with various tasks, such as gathering yearly reports and negotiating with the broker.
How do fund managers select the kind of investments?
In addition to their broad subject knowledge and insightful perspectives, fund managers gain valuable information from their research staff, who:
- Monitor the stock market for changes and analyse the magnitude of those changes.
- Assess the macroeconomic forecast and review the manufacturing rivalry which is equally essential.
- Conduct extensive analysis of the annual earnings of the businesses that the manager of the fund plans to invest in.
- Before making investment selections, evaluate the experience of the managerial directors and management along with all the findings mentioned above.
It might be inefficient to select the wrong fund or fund manager. The expense percentage for a fund and the make-up of the portfolio could also affect the funds returns. The Scheme Information Document (SID) and Key Information Memorandum (KIM), which are given by the fund companies and subject to regular changes, contain all the relevant and required information. Before investing, an investor must read and understand any changes to the portfolio that are available in the SID and KIM.
Lastly, a mutual fund is a vehicle for creating wealth and should not be assessed in the short term as it often provides returns primarily over a long time.
Conclusion
Investors turn to mutual funds to expand their holdings. The fund manager oversees the acquisition and disposal of fund holdings and collaborates with clients to help them make the most of their investment.
In order to become a fund manager, you must finish the prerequisite training and collect experience in years. Seasoned fund managers are glad when they help customers achieve their financial objectives.
The skills and accomplishments of fund managers impacts the performance of funds. Their superior stock selection, planning and scheduling abilities, as well as their investment philosophy, amount to greater profits and returns. Investors turn to fund managers if they do not have either the know-how or time for diligent market research.
Investors entrust managers with their money and sign agreements for wealth administration. However, the investor may also set the framework for their preference of fund manager.
Note: To help plan your trading activities and investment strategies, find here the NSE Holidays 2023, BSE Holidays 2023, MCX Holidays 2023, and Muhurat Trading 2023. Also see here to know more about the stock market timings.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.