The credit for the performance of a mutual fund can be attributed to the expertise and experience of its fund manager.
Many investors often research the fund manager before investing in any fund. It is a key driver of the performance of the fund.
However, the possibility of a fund manager leaving the fund is inevitable. It might happen that we have invested in a fund and the fund manager exits after a certain period of time.
What should we do in such a case? Further, we will also discuss how Koshex helps you in your mutual fund investments.
What To Do if the Fund Manager Exits the Fund?
Firstly, there is nothing to panic about. We should avoid making hasty decisions as there can be certain underlying reasons for the fund manager’s exit. Most AMCs are well capable to handle such scenarios. The following should be our next steps in case a fund manager decides to exit the fund:
Do Not Hastily Exit the Fund
As stated earlier, we should not exit the fund hastily just because the current fund manager exited the fund.
Mutual fund managers are usually the Chief Investment Officers responsible for asset management. There can be multiple reasons why the fund manager exited.
Further, while the fund manager has a great impact on the performance of the fund, the AMC would strive harder to maintain the investor’s returns and trust as it does not want to lose its reputation.
A mutual fund operates within a set of terms and protocols that do not change even if the fund manager changes.
The fundamental idea and goal are still the same. These terms and protocols can smoothen the transition process and help the new mutual fund manager adapt to the fund’s requirements quickly and seamlessly.
However, as a caution, we should also keep an eye if the exit of the existing fund manager will have any impact on the existing procedures and protocols. If yes, then we should proceed with caution.
What You Should Do: Hold your investments in the fund until things become more clear as to the new fund manager and his performance.
Try to Identify the Reasons for the Exit
This is the foremost step that we should take after we receive the news of the exit of a fund manager.
Why the fund manager exited? We should determine whether it was an advancement, switch or quit by the fund manager.
If the reason is the promotion of the star fund manager, then we don’t need to worry much. Chances are that the fund manager will still keep an eye on the fund and ensure that it achieves its goals.
However, if the fund manager has changed the mutual fund house, then we should determine whether it’s good to continue with the current fund or not.
What You Should Do: You can know the reasons for exit through the releases by the AMC or through news highlights.
Research About the New Fund Manager
Once the current fund manager exits, the new fund manager will take the charge of managing the assets under management.
We should research the relevant experience and expertise of the fund manager. We can study the performance of the fund that the new fund manager previously managed.This will give a clear idea of the capabilities of the new fund manager.
If the assets under management of the current fund are high and the fund has historically performed well, then the AMC would ensure that it only hires a capable fund manager with a good track record that can continue to provide the desired results as in the case of their previous star fund manager.
What You Should Do: You can know about the new fund manager by googling the information and tracking the performance of the previous fund managed by him.
Continue Your SIP Investments for a Certain Period
It isn’t necessary to stop our investments in the current fund after the current fund manager’s exit. We can still continue our investments in the fund for a certain period, especially if we are investing through SIP.
After a specific period, we will get to know how the fund is performing under the asset management by the new mutual fund manager.
What You Should Do: Do this until you get to know the performance of the fund manager or any changes in the terms and asset allocation.
Check for any Change in Asset Allocation or Terms
We should check out if there are any changes in the asset allocation of the fund. Each fund manager has his own way of managing the fund.
The fund may change the underlying shares or make some significant changes. Therefore, it is important to understand the investment philosophy of the new fund manager.
Another important point is to determine whether there is any change in the expense ratio of the fund after the entry of the new fund manager.
The AMC might pay a higher fee to the new fund manager which can increase the expense ratio of the fund.
What You Should Do: Go through the scheme again. Do determine if the changes still align with your investment goals and risk appetite.
Closely Monitor the Performance of the Fund
After the new fund manager takes charge, we should keep an eye on the performance of the fund. However, it is also important to know that the fund performance is not only impacted due to the fund manager but also because of external factors.
Therefore, while tracking the fund performance, we should also be aware of the external market factors and how the fund manager is responding to the same. We can also see the expert’s views on the change in the fund manager.
This will give us an idea of the way forward and what can be expected in the future.
What You Should Do: Keep an eye on the fund and track its performance on a regular basis for a few months. You will get a clear idea of whether to continue with this fund or not.
In a Nutshell
If a fund house has a really professional and expert mutual fund manager, then his exit might not be welcomed by the investors. However, as investors, we should also keep an open mind and try to analyze the consequences of this change. This is especially if we have a long-term investment horizon.
While the current fund manager was good, the next manager can even be better. In any case, we should be careful about the above points before we make any investment decision. If we have selected the right fund and AMC, then there’s nothing much to worry about.
Koshex is an investment platform that allows you to invest in mutual funds, fixed deposits, digital gold, and smart deposits. It enables automation of saving and investment which is one of the key factors for facilitating long-term commitment towards investing. We can choose among numerous funds as per our investment goals and risk appetite. When are you starting your investments?
Frequently Asked Questions
Q: Can a mutual fund close due to the exit of the fund manager?
A: It is highly unlikely that a mutual fund will close because of the fund manager’s exit.
Q: Whether exit load will be charged if we decide to exit the fund due to a change in fund manager?
A: It depends upon the terms of the scheme. However, most schemes do not exempt exit load just because of the fund manager’s exit.