How important are fund managers to mutual funds?

Equity trading is one of the fastest way to grow your money. However, the risks associated with trading in stocks is huge and hence diversification of resources is the most popular advice that financial experts give to investors. Mutual funds are an excellent example of diversification of investments in a way that optimizes returns and minimizes losses. Mutual funds are professionally managed funds that invest into a host of financial instruments. One of the most important reasons for people preferring mutual funds over trading in stocks is the guidance available via Fund Managers. Instead of taking the trouble of analyzing various stocks and investment options to zero down on the best investment package, customers prefer mutual funds which are available in various types and are professionally managed by Fund Managers.

  • Fund managers make up a very important aspect of mutual funds. Most mutual funds are promoted by companies and preferred by customers based on the track record of their fund managers. The period taken into consideration is usually 3-5 years.
  • There are times when customers rely on the track record of a particular fund or fund manager and then get dismayed when suddenly there is news that the fund manager has quit. This has happened more than several times with different mutual funds and for various customers. The key here is to remember that even if the manager has left, the stocks still are intact. The movement of a fund manager does not in any way affect the value of your investment. The only sensible decision in such a scenario is to be more alert with respect to your mutual fund scheme and to be on top of the tracking process. This will make up for any effect that changing of a fund manager may have on your investments.
  • For investors who still fear investing in mutual funds on account of fund manager walking out, index funds are a good deal. Index funds invest in stocks and bonds that track an index like the S&P 500 and do not rely on the expertise of star fund managers to select securities. This saves investors from paying tax bills when they wish to withdraw out of their mutual fund scheme on account of change in fund manager.
  • Nobody can deny the role played by fund managers in popularizing and maintaining a mutual fund scheme. However, it is necessary to look at a manager’s track record over a period of last 10 years or more to be statistically sound.
  • The overall market share of actively managed funds is huge as compared to other types of mutual funds. This means, that customers are really looking to avail funds that come with accompanying active role by fund managers. However, mostly, the success of any fund is coupled very tightly to the performance of the market, in general. Of course, the role of fund manager is substantial but the fluctuations in the market are the first force that determine the course of any fund.
  • Generally, mutual fund companies are well aware of the impact that a fund manager has on the sales and retention of a particular fund. As such, most companies maintain a solid talent pool of mutual fund managers from which a relevant new manager can be picked when an existing fund manager departs. This is because all fund houses are well aware of the fact that customers tend to depart with any change in fund manager.

In a research conducted by Morningstar between years 1990 and 1995, all funds that were doing well kept doing well irrespective of any change in their fund managers while those that were performing poorly continued to do badly regardless of any change in their management. This outcome does point out that although fund managers are essential to a mutual fund, customers do not need to make investment decisions purely based on them and their performance. To sum up, there is concrete evidence from the past and for various fund houses, that suggests that the contribution of fund manager to any mutual fund is mostly overestimated and the movement of markets remains the key contributor to the success or failure of a fund scheme.

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