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Should you follow your fund manager?

What happens though if your fund manager leaves one asset management company (AMC) to join another? Should you go along, sell the existing fund you have and buy the new one they will manage?

Mutual fund investing is as much about matching the scheme choice to your goal as it is about picking a good quality MF scheme to begin with. One of the metrics to determine this ‘quality’ is looking at the stock selection style and ability of the fund manager and their consistency of performance.

What happens though if your fund manager leaves one asset management company (AMC) to join another? Should you go along, sell the existing fund you have and buy the new one they will manage?

Exit with the fund manager?

While the fund manager is critical to the performance of a scheme over a long period, an AMC’s investment team and process is important too. The process creates a filter that then churns out a suitable list of shares that the fund manager can buy, and the team does the on-ground analysis.

This helps in preventing any individual bias towards one stock or another. Secondly, risk processes within an AMC define how much of a particular stock or group company the fund manager buys; this helps in building suitably diversified portfolios.

However, there is a certain stock selection skill from within the filtered universe, which can’t be replaced if the fund manager leaves. At the same time, the fund manager will not take the investment process along, which continue to remain as is. Thus, you do not want to sell your fund immediately as another fund manager will take over and follow the same processes. The two things you must do before making the choice to exit:

  1. Assess the fund house’s investment and risk management processes
  2. Check the new fund manager’s previous performance track record

If you are unable to do so, better align with an advisor who takes into account these details and can help you.

While the fund manager is critical to the performance of a scheme over a long period, an AMC’s investment team and process is important too. The process creates a filter that then churns out a suitable list of shares that the fund manager can buy, and the team does the on-ground analysis.

Buy the new scheme the fund manager takes over?

There is no certainty that the scheme your fund manager is going to manage henceforth will be able to deliver the same kind of consistent performance. For one, there is a legacy portfolio which the fund manager inherits and ends up changing. These impact returns.

Secondly, understand that the variables have changed; the investment team, the process, and filters for portfolio stock selection are likely to be different. This too, will impact the return outcome.

Hence, it’s best not to rush into any decision to either sell the existing scheme or buy the new one. Wait and watch for a reasonable period of 6-12 months and then make your decision.

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