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Should I worry if my fund manager quits?

Every year fund managers quit fund houses to join another. Does that mean that you should also exit funds and start chasing the fund manager?

Job-hopping is common in the mutual fund industry. Every year fund managers quit fund houses to join another. Does that mean that you should also exit funds and start chasing the fund manager? 

Thankfully, you need not.

Larger than life

Firstly, check if the fund manager in question has really quit the organization or has only been elevated to a higher post - say Chief Investment Officer (CIO). In case of the latter, there is lesser cause for worry as they would still oversee the fund’s investment process. Along with that evaluate the past track record of the newly recruited fund manager.

Some, fund houses – like Aditya Birla Sun Life Mutual fund – have two fund managers managing a single fund. It makes for a good succession plan, in case either of them quits. 

However, if a star fund manager or a CIO quits – it may affect the fund house. Often, long-stints by CIOs in a fund house influence its overall investment approach.  This is despite the process-driven approach that they might vouch for. 

This is more so in case of fund categories where investment mandates are loosely defined. Take for instance, multi-cap or ELSS funds. Unlike, that of large cap and midcap funds, in case of multi-cap funds there is significant leeway given for portfolio construction. Moreover, in other category of equity funds, investment approach could be tweaked from a value-oriented approach to that of growth philosophy or vice-versa.

However, if a star fund manager or a CIO quits – it may affect the fund house. Often, long-stints by CIOs in a fund house influence its overall investment approach.  This is despite the process-driven approach that they might vouch for.

How to check if there is a major shift in investment strategy?

A good way to find this is to look at a fund’s portfolio turnover ratio. If there is a significant change in it after recruitment of the new fund manager, it could indicate that a good part of existing portfolio is getting replaced. A look through a fund’s top holdings could also show if there has been a major overhaul.

If you are an investor in multi-cap or ELSS funds, you may check if there is a major shift in the midcap/small cap composition.

Last but not the least, closely monitor performance of the fund for about a year. If the fund continues to be among the top quartile of performance, despite change of hands, retreat to your sofa and chill.

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