India is the fastest growing major economy globally, and the expectations are that this growth will continue for many more years. However, to continue the growth trajectory, the businesses within India also need to expand and mature. That makes investing in the stock and equity markets one of the most lucrative ways to invest your money. However, not every company is bound to grow; some will stagnate, fail, or get disrupted. Hence you cannot invest in the shares of any listed company on the NSE BSE. It would be best if you diligently analyzed the business potential and financials of the business before you decide to buy its shares.
Role of a Fund Manager
However, every individual has commitments like a daily job, parenting, and educational goals. Not every individual wishing to invest in the stock market may have the time to learn about several companies and go through their financials. Even if they do, they must know to read and interpret financial statements. So, what should you do if you fall in any of the categories mentioned above? In that case, you have another option, which is to seek the services of a professional fund manager.
A fund manager can be a person or a group of persons qualified to implement a strategy and manage an investment portfolio of other investors. In India, a fund manager should have the SEBI (Securities and Exchange Board of India) license to provide financial services. They are skilled in researching and identifying the best securities to achieve an investment objective. Fund managers manage different types of funds like mutual funds, pension funds, and hedge funds. However, investing in a mutual fund is the most popular way to seek a fund manager’s services.
Seeking Professional Service by Investing in Mutual Funds
A professional fund manager manages a mutual fund offered by financial institutions like banks. You can think of a mutual fund as a basket, where many investors put in their money, which the manager then invests into various securities. Depending on the nature of the mutual fund, it may invest in securities like equity shares, bonds, and money market instruments. Before you invest in a mutual fund, evaluate your tolerance to volatility and determine the time frame of your investment. The rest is taken care of by the fund manager.
The fund manager will assess the different assets that will be suitable investments for the fund. Accordingly, they will allocate the appropriate capital to those assets. There are two types of mutual fund managers, passive fund managers, and active fund managers.
Passive Fund Managers
Passive fund managers construct a portfolio that always tries to match the index’s constituents in the appropriate proportions. They trade securities so that it mirrors the index’s performance. For instance, a mutual fund that replicates the Nifty 50 Index is a passive mutual fund. Since the manager only tries to mirror the index, they charge less than an active fund manager.
Active Fund Manager
On the other hand, an active fund manager invests and trades securities to outperform the underlying index. The manager has a more proactive role as they have to construct a portfolio of security they believe will help them beat the index. For that, an active fund manager has to evaluate global economic conditions, various businesses, and market sentiments. Hence, they impose a high fee for their services, as they help investors beat the market.
Portfolio Management Services (PMS)
However, if you have the capital and wish to attain a more specific, well-defined investment goal, you can consider approaching a PMS. A Portfolio Management Service or PSM is a wealth management service provided by qualified fund managers. However, unlike a mutual fund, a fund manager that provides PMS can cater to your requirements. However, the downside of approaching a PMS is that you must invest a minimum amount of Rs 50 lakhs. SEBI set the Rs 50 lakh limit for a PMS in 2019. So, as a retail investor, you are better off investing in a mutual fund if you want a professional fund manager to manage your investments.
Benefits of Seeking Services of Fund Manager
To sum it up, If you are someone who does not have time, knowledge, or dislikes financials, the best way to invest your money is through a mutual fund. This way, you do not have to evaluate companies on the NSE BSE to determine if they are worth holding as an investment. Your fund manager evaluates companies, devices a strategy, manages the investment portfolio, and helps you generate returns in the long run.