What's The Investing Style Of Your Fund Manager?

When it comes to investing in mutual funds, it is always advisable not to just look at the returns, but also the portfolio and, more importantly, a fund manager’s style of investing. As explained in this article, there are two styles of investing – value and growth.

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Behavioural bias is one of the hurdles of becoming a successful investor. Investors burdened with such bias typically make poor investment decisions. Many a time their investments fetch negative real rate of returns. Real rate of returns turns negative when the investment avenue generates returns lower than that of the prevailing rate of inflation. When it comes to investing in mutual funds, there are two major behavioural biases that investors carry. One is the ‘recency’ (a time immediately before the present) bias that leads investors to take decisions on recently generated returns.

The other is the ‘rating’ bias which makes investors look only at a mutual fund’s star ratings before investing. Though we are not against star ratings, these can be used as a first screen. Further, in our previous issue we have discussed how ranking is better than star ratings. But apart from returns and ratings, there are various things that a mutual fund investor must check before making any investment decisions. This includes the risk involved by investing in a particular fund or an asset class with respect to individual risk appetite. In addition, he should also look at the portfolio and the fund manager’s experience.