With 44 fund houses offering similar products, how does an advisor identify which fund house to work with?
There are various factors which you have to consider before empanelling with a fund house. The following points might help you chose the right fund house.
Performance
This is perhaps the first and most important factor advisors should consider. It is worthwhile to check the performance of returns over a long period of time and across different market cycles. Funds may perform well in certain quartile or in a particular year but it is important to find out the consistency of those returns. Returns may entice you but you should know the risk taken by a fund manager to generate returns. This can be measured through certain financial metrics like Sharpe and Treynor ratio.
Fund managers
The fund manager plays a vital role in driving the performance of a fund. The skills and acumen which a fund manager possesses is unique. Although a fund manager manages a portfolio in line with the objective of the scheme, the style and thought process of fund managers differ. That’s the reason why one fund performs better than other even if both have the same investment objective.
Another key aspect is the stability of a fund manager. Is the fund manager changing too often? If yes, then the performance of schemes might get impacted. It would also be wise to check how a fund manager is compensated. Are fund managers compensated for long term performance, short term performance or asset growth?
Investment process
While a fund manager plays a vital role in the navigating a fund, the fund house cannot solely depend on a fund manager’s skills to drive performance. A fund house should have investment processes in place to shield the fund from any adverse impact due to a fund manager’s exit. Over a period of time, this ensures a certain consistency and vigor.
Service
This is the quality and the amount of time taken by a fund house to respond to your or your client’s requests. Does a fund house have a large number of investor complaints which are unresolved? Is the fund house prompt in issuing dividend/redemption cheques?
Products
Advisors need to see if the fund house is providing the entire bouquet of products. If not, they can empanel with another AMC which will supplement this product. Moreover, the products should be true to label.
Value Add
The role of a fund house has extended beyond just managing funds. Many fund houses are helping their advisors to face the business challenges by imparting training, education and other tools.
Number of fund houses
Some advisors find it inconvenient to deal with more than a certain number of fund houses due to operational challenges. So they do business with only select fund houses which have a good performance track record, besides other things. However, it is better to diversify your client’s money not only across asset classes but also different fund houses. While the industry has seen entry of many new AMCs over the years, the distribution channel, especially IFAs, has shrunk in number. Many new fund houses want to empanel distributors who can bring them business. Advisors should see if the fund house has anything new to offer.
Small or big?
77% of industry’s assets in India are managed by the top ten fund houses, which in a way, shows that a majority of distributors are empanelled with them. However, choosing a fund house entirely based on its assets size might not be a good idea. Advisors can empanel with a small fund house if its funds are performing well.
Relationship Managers
A relationship manager is the face of a fund houses. These foot soldiers help and coordinate with advisors. The knowledge, skills and approach of relationship managers can be reflection of the culture of an AMC.
What according to you is the most important factor while evaluating a fund house? Let us know.
