The fund manager of your mutual funds plays a pivotal role in generating long-term returns. Carefully evaluating and selecting the best fund managers is essential for the success of your Rs. 5 crore investment plan. Read on to find out more.

Understand the fund manager’s impact on returns

The fund manager is responsible for making all the investment decisions for a mutual fund scheme. Their stock selection and market timing skills determine how the fund performs compared to its benchmark and peers. The fund manager’s investing style and risk appetite shapes the fund’s returns over time.

Analyze the fund manager’s experience and track record

Check that the fund manager has at least 8-10 years of experience managing funds in that category, such as large-cap equity funds. If you are planning to invest in equity funds, check the manager’s expertise in handling different types of equity funds. This provides them exposure to different market cycles. Review their long-term track record in generating alpha over benchmarks and beating category averages. Fund managers with stellar long-term returns likely have a competitive edge.

Evaluate performance across market cycles

Analyze the fund’s rolling returns over 3-, 5- and 10-year periods. A good fund manager consistently delivers healthy returns through bull and bear markets. Review how quickly the fund bounced back after the 2008 crisis or the Covid pandemic induced crash. The fund manager’s ability to contain downside during market declines is equally important.

Understand the investment strategy and style

Read the scheme information document to understand the guiding investment strategy and style. For example, does the large-cap equity fund follow a growth or value style? Analyze the portfolio composition and turnover to gauge whether the fund manager sticks to the stated mandate.

Consider portfolio concentration levels

Check the fund’s concentration in the top 10 stocks and sectors. Over-exposure to a few stocks or sectors increases risk. Opt for prudent diversification by the fund manager across companies and sectors. Avoid funds with >30% exposure to a single stock or sector.

Check for performance consistency

Consistency across market cycles and years is a hallmark of skilled fund managers. avoid managers with erratic performance of very good one year followed by underperformance the next year. this indicates lack of a well-defined and disciplined investment process.

Keep costs low to maximize returns

Opt for funds with low expense ratios below 2%. Higher costs eat into returns. Evaluate the fund manager’s contribution to returns over and above the expense ratio costs. In terms of costs, index funds and ETFs are good choices for passively managed large-cap equity funds.

Review qualifications and team stability

Check the academic qualifications and professional certifications of the fund manager. Opt for managers trained at leading business schools or with CFA qualifications. Seek out managers with over 10 years tenure managing the specific fund and stable teams supporting research.

Select based on long-term performance

Don’t select a fund manager purely based on short-term outperformance. Investing success takes skill plus luck. Opt for consistent long-term track record and a well-defined investment process that can be repeated over market cycles. Avoid managers taking excessive risks or having concentrated portfolios to juice up short-term returns.

Diligently evaluating and picking the most competent mutual fund managers for your core portfolio is key to achieving your 5 crore investment goals. Match manager style to your risk profile and time horizon.

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