Investors should avoid knee-jerk reactions to the changes in the top management of their fund house
Mutual fund industry is buzzing with CIOs/fund managers stepping down from their roles. In the last few days, we had news of Anup Maheshwari, CIO from DSP BlackRock Mutual Fund, Gopal Agrawal, CIO from Tata Mutual Fund and Ravi Gopalkrishnan, head equities from Canara Robecco AMC quitting.
CIO change is an important event which investors should take notice, especially if they’ve already invested in the schemes he/she was managing,” said Anjaneya Gautam - Senior VP and National Head Mutual Funds, Bajaj Capital.
However, investors should avoid knee-jerk reactions to the changes in the top management of their fund house. “More than the CIO of a fund house, it is the fund manager(s) of a mutual fund scheme who makes regular investment decisions for that particular scheme. Therefore, the exit of a top fund house functionary should not impact the performance of a mutual fund scheme as long as its fund management team and investment style remains the same,” said Manish Kothari - Director and Head of Mutual Funds, Paisabazaar.com.
Often investors are in a quandary when they read about the exit of the CIO/fund manager(s) of a fund they are invested in. It is natural to worry, but irrational to exit the fund without analysing the situation. Here are six things investors should do in this situation:
Pulling out your investments from the scheme should not be a hasty decision when CIO/fund manager quits. Navin Chandani, Chief Business Development Officer, BankBazaar said: “Wait and watch for a few quarters how things change. If there is a change in the investment mandate or style of the fund, then it may no longer be a right fit in your portfolio, especially if the changes are clashing with your investment objective or risk profile. In this case, you should exit.”
“If the fund is underperforming both its benchmark and category for more than a year, and you are not convinced with the reasons given by the new CIO / fund manager, you may exit the scheme," he added. However, don’t let one month of performance make you change your mind. Monitor the performance for at least four quarters before you take a call.Fund’s performance is influenced by various parameters so avoid panic
It is understandable that any change in the CIO/fund manager of a fund makes investors anxious, since he/she was the face of the asset management company. “In the asset management industry, a fund’s performance is influenced by the system processes, risk management measures and contributions from the other members of the investment team. Therefore taking a decision solely on the basis of the CIO/fund manager is probably not the most ideal way to invest,” said Alok Singh, CIO, BOI AXA Mutual Fund. In case there is a change in the top management, investors should avoid panic and wait for some time to see how the asset management company deals with the situation.
Understand the depth of the team
Kaustubh Belapurkar, Director Manager Research, Morningstar said: “While the CIO does play a crucial role in shaping the investment thought process, giving direction to the outlook and aiding investment decision making process, he does not act alone. It is important to gauge the experience of the other team members.”
For instance, the team will have one of many senior fund managers, a head of research, and multiple analysts who have been with the fund house for long periods of time. All of them collectively drive the investment decision making process. So, as long as the team has depth, experience and are well ingrained in the investment process, investors needn’t worry as the second line is more than capable to take up the reins when required.
Make an informed decision if exiting the fund
Singh cautions, “Consequently in such a situation, if you are deciding to exit the fund, then due importance should be given to things like exit load and taxation, amongst other parameters in order to make an informed decision.”
Belapurkar said: “The portfolio of your fund will not change overnight, but redeeming in a hurry may result in an adverse tax impact. So, analyse your tax situation before exiting.” For instance if you are invested in an equity fund for less than 1 year and decide to redeem, it may be prudent to wait till you complete 1 year of holding before you redeem.Investors should be vigilant more about the scheme reclassification instead of CIO changes
“At present, more than just CIO / fund manager changes, investors should be vigilant about the scheme reclassification by AMCs as per SEBI circular. While it’s easy for an investor to keep a track of CIO / fund manager changes, scheme reclassification is happening at a much broader scale and at a much faster pace which could impact your long term portfolio." Gautam added. So, investors should take aid of their financial advisor to get complete understanding of this changes and take appropriate steps of staying invested or redeeming.Follow @thanawala_hiral