Is it advisable to exercise caution when selecting your mutual fund house?

New Delhi: The mutual fund industry is crowded with nearly forty asset management companies (AMCs) competing for their share of the market, and new entrants are also poised to join the competition simultaneously. Have you ever pondered the influence of selecting a fund house on a scheme’s performance or on an investor’s portfolio?

A commonly held belief is that certain schemes, especially passive ones, have pre-established stock ratios, rendering the discretion of both the fund manager and the fund house inconsequential. Nevertheless, experts emphasize that even passive schemes exhibit a tracking error that can be reduced through robust procedures. Undoubtedly, the selection of an AMC holds greater significance when it comes to active mutual funds.

Tracking errors in passive funds can also exist, but they can be mitigated through robust procedures and an experienced team. This underscores their significance even in the context of passive funds. However, in the case of active funds, this becomes even more critical. The scale of the scheme can aid in reducing expense ratios and facilitate the recruitment and retention of high-quality talent in research and fund management aspects of the business.

Effective leadership is crucial

Certain experts contend that the reputation of a mutual fund company holds significance as corporate governance regulations become more stringent, and the caliber of management can differ from one fund house to another.

Selecting the right fund house is essential due to the pivotal role of management quality, especially with the tightening of corporate governance regulations. Additionally, investment processes are paramount as they empower the fund manager to make informed decisions. Choosing the appropriate AMC is of utmost importance. The right team overseeing your investments can significantly contribute to the long-term growth of your portfolio.

Each AMC has distinct characteristics and investment approaches. When making a selection, it’s crucial to ensure that the AMC boasts a well rounded team rather than relying solely on a single individual. Therefore, the next time you consider a mutual fund scheme, prioritize your choice of the fund house with the same level of seriousness and caution, if not more, than you do for the scheme and its category.