Skip to main content

Fund house or Fund manager – Which one?

The mutual fund (MF) sector has come a long way. In 1987, the doors were first thrown open for entry of the first non-UTI mutual fund. During those early days, only the public sector was allowed to operate MFs.

Then, in 1993 (a watershed year for MFs), private sector mutual funds made their appearance. Kothari Pioneer (now merged with Franklin Templeton) was the first in India. In a relatively short span, the assets under MF management have grown phenomenally to around `7.5 lakh crore. But it is still only the tip of the iceberg; the bulk of Indian savings are parked in bank deposits. But, over time, as investors gradually discover it is indeed the instrument of an MF that is the ideal vehicle to build one's capital over a period of time, the figure will increase manifold.

That said, it is strange that one needs qualifications to distribute (sell) funds, there are none needed to manage these! One would think that if distributing funds is a responsible task, managing the distributed funds would be more so. Currently, anyone can be a fund manager regardless of their qualifications.

Basically, the issue thrown up is, how important is the role of the fund manager in the overall scheme? Are qualifications and credentials of an individual more critical or are the systems, processes and risk management strategies put into place by the MF that employs him? Does the fund manager's investment style take precedence over the fund's investment process or is it the other way around?

MANAGER VERSUS HOUSE

There is no plain yes or no answer and it depends upon the fund and its philosophy. When you invest, you are implicitly reposing a certain amount of trust into the fund manager's expertise and capability. You are essentially hiring a professional to manage your money and pick your stocks and because of the cost sharing with thousands of others, the professional expertise comes at an economical price.

Conventional logic would say it is the ability and the skill of this professional, the fund manager, that should generate the returns. However, is it always so? Investing thousands of crores belonging to hundreds of thousands of investors is clearly not a one-man job. What's more, now even the international markets are being opened for domestic mutual funds.

Typically, MFs are usually managed by a team of managers, backed up by analysts and researchers. Just like a captain is as good as his team, without able support, no matter how skilled a fund manager is, he will not be able to deliver optimally.

Second, it also depends upon the type of fund under management. A passive fund, such as an index fund that mirrors a certain benchmark, does not require the active intervention of a fund manager. Similarly, a quant or an arbitrage scheme, where the mandate of the fund is mechanical and pre-defined and not dependent upon individual calls, requires more of software, systems and IT support, rather than fund management expertise.

The other factor one has to consider is the management philosophy of the fund house -- whether process-driven or one that provides fund managers latitude and flexibility. Some houses give a fair amount of autonomy to the fund manager in taking large sectoral calls, churning the portfolio or even investing in small caps or unlisted companies, subject of course to Sebi regulations. On the other hand, there are fund houses that follow a strong, process-driven investment style and the fund manager's role is to perform within the parameters defined by the institution.
 

Popular posts from this blog

Jeevan Labh

 The Life Insurance Corporation of India has announced Jeevan Labh , its limited-premium, with-profits endowment plan .   It comes with a premium paying terms of 10, 15 and 16 years for corresponding policy tenures of 16, 21, and 25 years respectively. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 83...
Read more

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...
Read more

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...
Read more

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...
Read more

General insurance

  General insurance has evolved to become as important as life insurance. A look at some categories which can no longer be over-looked…    Insuring your belongings can help you cushion yourself against financial losses. While life insurance takes care of your loved ones, it is equally important to safeguard your treasured possessions. Here's a quick look at the 'must-haves' under general insurance…     Travel insurance Accidents can happen anytime – worse if they happen when you are in a foreign land. You may get sick and meeting your medical bills in a foreign currency can be quite frustrating! Besides, there may be other tricky situations such as accidents, loss of baggage or passport, trip cancellation, flight delays, plane hijack, etc. Whether you travel for leisure, business or studies, travel insurance comes handy to safeguard your trip against contingencies and that too, at a fraction of the cost of your trip.     Home insurance For most of us, the home is the...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now