Market fluctuations are not entirely responsible for mutual fund performance, but only partially. The other half depends upon the management skills of the fund manager. Mutual funds may be managed, actively or passively, by a fund manager. This may involve making buying and selling decisions in the case of active management and using an established index in the case of passive management.

To understand why your fund manager’s management expertise is pivotal to portfolio success, let’s get to know their role in detail.

The role a mutual fund manager plays

Deciding where to invest

Investing in mutual funds is subject to market risks. Though a fund manager’s experience is crucial to making successful investment decisions, market volatility makes it imperative to conduct independent research frequently. Fund managers monitor the volume of shifts in the stock market, gauge the macroeconomic outlook by analysing competition, thoroughly review the annual results of AMCs, and then decide the best sectors and funds to invest in.

Monitoring the growth and performance of the fund

Fund managers take calculated risks to ensure their funds generate high and steady returns. However, they need to justify the risks taken by delivering growth that beats market inflation. As a result, they also play the role of monitoring fund performance and buying/selling securities accordingly so as to deliver high returns based on the investment goals and objectives of the investors.

Additional Read: Importance of Mutual Funds

Protecting investors’ capital

This is one serious responsibility indeed. Mutual funds are subject to market turbulences, but the fund manager needs to ensure that these risk assumptions are not reckless. Some of the methods employed by fund managers to protect investor capital include portfolio diversification, asset allocation mapped to the investor’s risk profile, and investigations into the AMC in question.

Meeting the reporting requirements

Mutual fund managers do not develop portfolios in isolation. They need to work within the boundaries of regulatory guidelines, investor objectives, risk profile, expenses involved, and different government policies. They also need to ensure that investors are well-aware of the different rules of MF investing and abide by them sincerely. Timely document submission also comes under the jurisdiction of the fund manager.

Differentiating between a good and average fund manager

Despite the crucial role played by the fund manager, not all of them are equal. You can distinguish a fund manager worth their salt from a substandard one by –

  • Checking if their funds have outperformed the market benchmark consistently
  • Finding out if the fund manager in question keeps track of other institutional investors and their buying/selling decisions
  • Reading online reviews and getting to know their work experience
  • Monitoring if they’re able to identify scripts ahead of their peers

Additional Read: What Are the Advantages of Investing in Mutual Funds?

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