Factors affecting Management style of a scheme
It’s one thing to understand mutual funds and their working; it’s another to ride on this potent investment vehicle to create wealth in tune with your risk profile and investment needs. Here are seven factors that go a long way in helping an AMC meet its investor’s investment objectives. The factors listed below evaluate factors affecting the management style of a mutual fund scheme.
Knowing the profile
Investor’s investments reflect his risk-taking capacity. Equity funds might lure when the market is rising and peers are making money, but if you are not cut out for the risk that accompanies it, don’t bite the bait. So, check if the investor’s objective matches yours. Investors will invest only after they have found their match. If they are racked by uncertainty, they seek expert advice from a qualified financial advisor.
Identifying the investment horizon
How long on an average does the investor want to stay invested in a fund is as important as deciding upon your risk profile. Investors would invest in an equity fund only if they are willing to stay on for at least two years. For income and gilt funds, have a one-year perspective at least. Anything less than one year, the only option among mutual funds is liquid funds.
Declare and Inform
Watch what you commit. Investors look out for the Offer Document and Hey Information Memorandum (KIM) before they commit their money to a fund. The offer document contains essential details pertaining to the fund, including the summary information (type of scheme, name of the asset management company and price of units, among other things), investment objectives and investment procedure, financial information and risk factors.
The fund fact sheet
Fund fact sheets give investors valuable information of how the fund has performed in the past. It gives investors access to the fund’s portfolio, its diversification levels and its performance in the past. The more fact sheets they examine, the better is their comfort level.
Diversification across fund houses
If Investors are routing a substantial sum through mutual funds, they would diversify across fund houses. That way, they spread their risk.
Chasing incentives
Some financial intermediaries give upfront incentives, in the form of a percentage of the investor’s initial investment, to invest in a particular fund. Many amateur investors get lured into such incentives and invest in such attractive schemes, which may not meet their future expectations. The ideal investor’s focus would be to find a fund that matches his investment needs and risk profile, and is a performer.
Tracking investments
The investor’s job doesn’t end at the point of making the investment. They do track your investment on a regular basis, be it in an equity, debt or balanced fund.
Portfolio management is an important foundation of mutual fund business. The performance of the fund measured by the risk adjusted returns produced by the investor arises largely by successful portfolio management function. After collecting the investors’ funds, effective portfolio management will have to give returns acceptable to the investor; else, the investor may move to better performing funds.
From the investors’ perspective, the need for successful portfolio management function is obviously paramount. However, in the complex world of financial markets, portfolio management is a ‘specialist’ function.
Now how a fund manager manages the portfolio would depend on the type of the fund he is managing. The funds can be broadly classified as equity funds and debt funds.
It’s one thing to understand mutual funds and their working; it’s another to ride on this potent investment vehicle to create wealth in tune with your risk profile and investment needs. Here are seven factors that go a long way in helping an AMC meet its investor’s investment objectives. The factors listed below evaluate factors affecting the management style of a mutual fund scheme.
Knowing the profile
Investor’s investments reflect his risk-taking capacity. Equity funds might lure when the market is rising and peers are making money, but if you are not cut out for the risk that accompanies it, don’t bite the bait. So, check if the investor’s objective matches yours. Investors will invest only after they have found their match. If they are racked by uncertainty, they seek expert advice from a qualified financial advisor.
Identifying the investment horizon
How long on an average does the investor want to stay invested in a fund is as important as deciding upon your risk profile. Investors would invest in an equity fund only if they are willing to stay on for at least two years. For income and gilt funds, have a one-year perspective at least. Anything less than one year, the only option among mutual funds is liquid funds.
Declare and Inform
Watch what you commit. Investors look out for the Offer Document and Hey Information Memorandum (KIM) before they commit their money to a fund. The offer document contains essential details pertaining to the fund, including the summary information (type of scheme, name of the asset management company and price of units, among other things), investment objectives and investment procedure, financial information and risk factors.
The fund fact sheet
Fund fact sheets give investors valuable information of how the fund has performed in the past. It gives investors access to the fund’s portfolio, its diversification levels and its performance in the past. The more fact sheets they examine, the better is their comfort level.
Diversification across fund houses
If Investors are routing a substantial sum through mutual funds, they would diversify across fund houses. That way, they spread their risk.
Chasing incentives
Some financial intermediaries give upfront incentives, in the form of a percentage of the investor’s initial investment, to invest in a particular fund. Many amateur investors get lured into such incentives and invest in such attractive schemes, which may not meet their future expectations. The ideal investor’s focus would be to find a fund that matches his investment needs and risk profile, and is a performer.
Tracking investments
The investor’s job doesn’t end at the point of making the investment. They do track your investment on a regular basis, be it in an equity, debt or balanced fund.
Portfolio management is an important foundation of mutual fund business. The performance of the fund measured by the risk adjusted returns produced by the investor arises largely by successful portfolio management function. After collecting the investors’ funds, effective portfolio management will have to give returns acceptable to the investor; else, the investor may move to better performing funds.
From the investors’ perspective, the need for successful portfolio management function is obviously paramount. However, in the complex world of financial markets, portfolio management is a ‘specialist’ function.
Now how a fund manager manages the portfolio would depend on the type of the fund he is managing. The funds can be broadly classified as equity funds and debt funds.