As children, haven’t we enjoyed playing a game of musical chairs?

Even as grownups, the game is just as fun to play or watch.

The players are many, the chairs are few. As the music plays on, the players walk around the empty chairs eyeing the nearest seat.

When the music stops, no matter how courteous we may be in real life, our competitive nature drives us to vie for a chair to sit in. For the ones left standing—tough luck—they are out of the game. As the game proceeds, the players and chairs decrease. The participants keep switching chairs, until a winner is declared.

As uncanny as it may be, this game is played in real life as well. We have often seen it played out in politics. Politicians jump political parties or change allies (as seen recently in the Bihar Legislative Assembly), in a hope to come to power. In the corporate world too, employees will move from one company to another seeking better prospects. Wouldn’t you join another company that offers you a career growth, higher salary, or better perks?

In the mutual fund industry too, it is common to see fund managers moving from one fund house to another, few may adopt a different path. Some retail investors may be unaware who the fund managers of their schemes are, as they are only concerned about the fund’s performance. On the other hand, others may give more importance to the performance track-record of the fund manager.

When a star performer fund manager quits, certain schemes suffer heavy outflows of assets, as investors outlook turn pessimistic.

Over the past few years, some of the high profile fund manager exits include:
 

Fund Manager Name	Erstwhile	Present
Mr Kenneth Andrade	CIO-  IDFC Mutual Fund	Founder, Old Bridge Capital Management PMS
Mr Pankaj Murarka	CIO - Axis Mutual Fund	CEO - Renaissance Investment Managers
Mr S Nagnath	CIO - DSP BlackRock Mutual Fund	Not Disclosed
Mr Ritesh Jain	CIO - Tata Mutual Fund	CIO - BNP Paribas Mutual Fund
Mr Anoop Bhaskar	CIO - UTI Mutual Fund	CIO - IDFC Mutual Fund
Mr Gopal Agrawal	CIO - Mirae Asset Mutual Fund	CIO - Tata Mutual Fund
Mr Manish Gunwani	Deputy CIO - ICICI Prudential Mutual Fund	CIO - Reliance Mutual Fund

(Source: PersonalFN Research)

While few star fund managers left to start their own enterprise, others joined another fund house. Here, we have mentioned only the exits of top CIOs; but within a fund house as well, the fund management roles are often shuffled.

As the fund management roles change, what should you do?

One cannot undermine the fund manager’s importance. Even in a fund house, which is process and team-driven, the fund managers have an important role to play. However, the key lies in striking a balance between the two, i.e. the systems and processes of the mutual fund house and fund manager’s judgement. This should be a crucial aspect when investing in a scheme or when deciding to exit a scheme or hold on to it if there is a fund management change.

It is necessary to give due importance to the investment processes and systems the fund house follows. This will help you reduce any risk, as the investments made (for the portfolio) are process driven, where the fund house outlines the investment mandates, and the fund manager's role is to function within these defined parameters.

To assess whether a fund house follows sounds processes and systems, you need to:

• Check if a fund house has a dedicated research team backing its investment decisions or if stock picking is done based on whims and fancies of the fund manager;
   
• Delve a little deeper in understanding the fund house's investment philosophy;
   
• Be wary of fund houses that act as asset gatherers in their race to garner more Assets Under Management (AUM), rather than being prudent asset managers; and
   
• Weigh the investor service and transparency – it’s  vital for you as an investor

Hence, if a fund manager quits, don’t redeem your investments as a knee-jerk reaction. Delve deeper into the experience of the new fund manager. The fund manager should be an experienced and knowledgeable person to steer your fund through the ups and downs of market cycles.

Take a look at the other schemes the new fund manager has managed in the past and/or presently, and then decide. You may also rate the fund house as a whole, the investment process, performance consistency, etc. Keep the fund on the watch list and monitor the performance for the next six months.

In order to have a more holistic view of mutual funds, it is imperative that the quantitative as well as qualitative parameters are both considered. Qualitative parameters are able to produce more robust ratings, as it takes into account a host of factors to reflect consistently performing mutual funds.

Qualitative parameters that add to the long-term investment objective of wealth creation include the fund manager’s experience, number of schemes managed by them, whether or not the fund house is capable of consistent performance across funds and the investment processes and systems.

Analysing these aspects, along with the quantitative parameters, may be a tedious task for individual investors. Hence, it is best to consult an investment adviser.

We suggest that you seriously consider signing up for an unbiased research-based services offered by PersonaFN. PersonalFN follows a stringent scoring model, which ensures that the scheme is tested on various quantitative as well as qualitative parameters, and compared, scored vis-à-vis its peers. The schemes able to pass through our rigorous test and achieve the maximum composite score on all parameters (based on pre-specified weightages) will receive a higher star rating.

PersonalFN even offers 7 high-performing, time-tested ready-made mutual fund portfolios that are constantly tracked by a highly experienced research team. All you need to do is invest in the mutual fund schemes and the research team will monitor the portfolio, and suggest any change when required. This model mutual fund portfolio service ‘FundSelect Plus’ has completed a decade, and we are offering subscriptions at a massive 75% discount! Don’t miss out this Special Anniversary Discount. Click here to Subscribe now!

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