Questions to ask fund managers

FAQs that are best not asked Ask not how much a fund can generate. Ask not where the market will be one year down the line. Ask not for the fund manager’s opinion on regulator/government’s action. Ask not which fund your investor should be investing in now.

Performance is not always about returns Ask not how much a fund can generate This question is not only irrelevant in a market-linked product but also does some damage on fund management as well. Here’s how: The pressure of sales (and distributors) can really nudge fund houses/fund managers to push the boundaries of risk. It can lead to high churns, too many tactical calls. It can lead to a sharp high performance followed by steep fall in a fund It can lead to credit traps.

Ask: Performance is not always about returns Ask whether the fund will beat its benchmark consistently and how. Ask why an investor need to pay more for a fund that cannot beat an index for 2 consecutive years. Where the returns came from last year or Why the returns did not come by last year.

Performance is not always about returns 2016 2017 2018 Multi cap IDFC Focused Equity (IDFC Imperial Equity) 1.79 54.57 -12.65 Invesco India Growth Opportunities 3.34 39.73 -0.24 Aditya Birla Sun Life Pure Value 9.02 56.19 -23.35 Category average 5.11 38.29 -6.55 Large cap Axis Bluechip Fund -3.63 38.13 6.51 2.89 30.62 -1.70

Ask about the present, not the future Ask not where the market will be one year down the line. Ask: Why the market is where it is today. Eg: the Nifty returning in 2018 while broad market was not. This will provide cues on fund performance too. Why some sectors are currently beaten down than the others. Ask why the fund manager is holding currently underperforming sectors or still holding over-valued sectors.

Exposure(%) in sectors How the present makes a difference in the future Exposure(%) in sectors Scheme Name Axis Bluechip SBI Bluechip Automobile Jan-19 3.35 8.10 Cement & Cement Products 0.24 2.53 Chemicals 1.98 0.59 Construction 1.79 6.19 Consumer Goods 15.78 9.74 Current Assets 18.01 6.67 Energy 2.17 7.21 Fertilisers & Pesticides -- 3.55 Financial Services 37.79 35.57 Industrial Manufacturing 3.39 IT 16.53 6.77 Metals 2.43 Pharma 1.35 4.21 Services 1.17 Telecom 0.99

How the fund manager tackles events Ask not for the fund manager’s opinion on regulator/government’s action. Ask: Ask about the fund’s strategy to tackle such action. Eg: post budget, is there a change in stance in sectors or post monetary policy what is the duration call. Ask what the manager seeks to do to tackle some market events: for example – the NBFC liquidity crisis

Ask not which fund your investor should be investing in now. Ask: You decide what’s good for your customer Ask not which fund your investor should be investing in now. Ask: The prospects for small-caps now (after the correction). Whether large-caps make sense with the shrinking outperformance. Ask why an investor needs duration funds and how to take signals to reduce exposure to these funds. Ask whether the fund house’s short-term funds have credit exposure.

Get focused with your questions What is the objective behind your discussion with the fund manager? What is the most asked question (other than returns) by your investor on a scheme performance for which you don’t have an answer? What will help you identify upcoming performers rather than the past performers? What will help you provide direction on fund’s strategy following a government action/regulation? What are the 3 things that you can tell your investor about a specific scheme?