Fund Management Style in Mutual Funds

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THERE are certain distinctions that are made by various mutual funds in terms of the nature of the schemes that they run.

 

From a distance this might not be evident for an investor who might see a range of funds as being similar in nature, like several equity-oriented funds, but often this is not the case as small but important distinctions are present between them.

Every investor needs to try and understand the logic behind a mutual fund running a particular fund and then checking data with respect to its actual actions as to whether this has been able to fulfill the mandate that it has been given.

Apart from just looking at the returns, it is also important to look for the fund's adherence to a particular approach or style of management. This will be beneficial in the long run as investors will be able to build a portfolio based on the styles of management followed for different funds.

Various styles:

There are a lot of investment styles or ways in which the portfolio of a particular fund is constructed and managed. The objective for a particular mutual fund scheme is paramount in determining the manner in which the funds will be managed and the kind of portfolio that will be constructed.

While separating funds based on their market capitalisation is a common way to go about things, there are a lot more variations that would be visible if one looks at some other ways too. So there can be funds that are investing in large and midcaps, but there can also be a distinction between funds that invest in high dividend yield companies or companies that have a high export potential or those companies which are focused merely on domestic consumption and so on. All these represent a different way of looking at things from the perspective of the investor.

Similar portfolio:

The problem for investors starts to arise when they find that the portfolios for a few funds are similar in nature in the form of a few of the top holdings being the same. Just because there are a few common holdings, it does not mean that there is a similar way in which the funds are being managed.

The question that an individual investor needs to ask in this kind of situation is whether the similarity is present even though the fund manager has followed the guidelines for the fund.

So for example, there could be a situation where a few companies that fall in the large-cap space are the ones that are globally competitive so that some of the names here can be the same. The vital point to be considered is the overall objective and whether the fund is able to stick consistently towards this objective.

Investments:

 

Every investment made into mutual funds needs constant monitoring to see whether there is a deviation from what is actually required.

 

There could be times when a deviation is clearly visible and the investor has to make a decision as to whether they want to maintain their investments even when the situation is not something that they would prefer to have.

It is always better to make a detailed study of the entire position and then evaluate as to whether the actions that have been witnessed are actually in line with what would be considered a normal way of dealing with things. If investors think that a fund is not sticking to its goals, then the better option would be to ensure that they should change their investments to an area where it matches with their goals.

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