How to deal with a fund manager's exit

When a highly regarded and influential person at the helm of a company's affairs leaves, it no doubt creates a flutter among its stakeholders. Having steered the ship for so long, his departure rings alarm bells and raises questions regarding the future of the company. Similarly, the exit of a reputed manager of a mutual fund is bound to raise some eyebrows.

When the person who has consistently created wealth for your fund leaves, seeds of doubt will surely get planted in your mind: How much of an impact will it have on the fund's performance? Will the new fund manager be able to carry on his predecessor's good work?

Over the past couple of months, at least seven different fund houses have effected changes in the stewardship of their respective mutual fund schemes (see graphic New managers take over the reins). While some have merely reshuffled responsibilities among team members, others have seen their fund managers vacate their post, requiring them to be replaced by another.

These include UTI Mutual Fund, Fidelity Mutual Fund, ICICI Prudential Mutual Fund, Taurus Mutual Fund, IDBI Mutual Fund, Tata Mutual Fund, Principal Mutual Fund and Escorts Mutual Fund. Is there a cause for worry if you are invested in any of these schemes or can you safely ignore this development? If you find that your trusted fund manager is moving on, here is how you should tackle the situation.

Do not jump ship - Though many of us rely on the reputation and brand of the fund house when selecting a particular fund, there are some who assign more importance to the individual behind the fund. Have you invested in the fund based on the fund manager's track record?

In such a case, seeing your fund manager leave will probably make you question your investment. Some of you may be considering an exit from the fund.

Actively managed funds are usually more dependent on the fund manager's ability to execute key decisions at the right time. However, there is no need to press the panic button simply because a star fund manager has left.

While there have been instances when a fund manager's exit has caused a dip in the fund's performance, there is enough evidence to the contrary also. The question investors need to ask is, how crucial is the fund manager to the fund's performance?

Contrary to beliefs, mutual fund schemes are often run by teams and not merely by an individual. There are usually processes in place which remain constant throughout the life of the fund, that is, the core philosophy remains unchanged.

So, when a particular fund manager leaves, the next in line can simply fill his shoes without requiring any change in the security selection processes. This ensures that the fund performance doesn't get affected. The fund house pedigree matters more than the individual.