Expert advice

Oct 05, 2016,16.22 IST

5 Questions to ask when fund managers invest in their own funds

Arnav Pandya

There are several fund managers who put money into their own funds. This has become a trend and there are several implications that are drawn into these actions. The lay investor is often confused at the entire turn of events as they might not realise the implications of the move and how it might have an impact on the decisions that they make. Rather than just take the details of the action at face value it is vital that there are some more details accumulated. Here are five questions that the investor could use in such circumstances to help them along.

Is the investment decision recent?

There are an increasing number of fund houses where the fund manager invests in the fund that they manage. This has picked up in terms of numbers in recent times and hence the investor has to check whether the action of the fund manager is recent. This will give them an idea as to whether the action is just being done as a ‘me too’ action or there is actually some time period since which this has been followed. The longer the time period the greater the confidence for the investor but this needs to be looked at in conjunction with several other factors.

Is this compulsory?

Some fund houses might have made the process compulsory so in these cases the fund manager has little choice but to invest the amounts that they have with the fund which they are managing. The fund house would be justified in ensuring that the fund manager has confidence in their own abilities by putting their money in the fund itself. But this might not result in a higher confidence for the investor because since everyone in the fund house has to do it leaves little in terms of choice for the fund managers.

Are fund managers given a choice within the fund house schemes?

There could be cases wherein the fund managers might not have a choice at all even in terms of schemes within the fund house and this can be an extension of the policy to make it compulsory to invest. While having a fund manager choose his fund as an investment option is one thing not allowing investments in any other route except their own fund closes off even a small choice for the fund manager. When this is the case then there is little that will raise the confidence for the investor because this is being done as there are no other options available,

Is the performance satisfactory?

The fund performance is a very important factor in the whole calculation as at the end of the day the investor needs to earn returns. Once the performance is stable and strong then the other conditions become a tool that will help in the decision making. This is the reason why the investor should not lose sight of the basic factor that deals with the investment as it will enable them to be correct in terms of the choice. There could be efforts to hide the performance weakness behind other details but for investors this has to remain at the forefront.

How much does the fund talk more about this?

If the fund house does not talk about the fact that the fund managers invest in their own fund or talks too much about it at the expense of other things then this might not send out the right signals. Disclosure of the fact is an important thing but putting this factor as the best or the main reason for investors to believe in the fund might not be what the investor would want. This is the reason that the investors need to be wary of the manner in which the fund house goes about the whole process.
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