The Hindu Business Line : How much does the manager matter?

The fund manager's exit is an important event. It merits closer tracking of the fund's performance and checking on the fund's performance over the subsequent few quarters.

I have invested a large sum in SBI Mutual's Emerging Businesses Fund. Now, I understand that the fund manager of the same has resigned and gone to some other place. Is it advisable to invest more in the fund, given that the fund manager responsible for the good performance has changed?

Shrijit Balakrishnakurup

You certainly shouldn't invest the lion's share of your savings in a single fund and that too in a relatively new one such as the SBI Emerging Businesses Fund. We suggest you switch at least part of your savings from the SBI Emerging Businesses Fund to a diversified fund managed by another fund house: HDFC Top 200 and Franklin Prima would be among our preferred choices, based on their track record.

Diversifying across three or four funds (and fund houses) would avoid exposing your investments to a single investment style and skills of one particular manager.

As to your query about the change in fund manager, this warrants that you keep a closer watch on the fund's performance. But it may be premature to take a decision to exit the fund. It is true that many of SBI's equity funds have turned in an impressive performance under Mr Sandip Sabharwal's management.

The Emerging Businesses Fund, too, has fared impressively in the short period since its launch. However, it may not be right to attribute a fund's performance solely to the fund manager, though his stock selection skills do play a big role in turning in good returns.

The investment style of a fund house, the research team backing a fund manager's calls and the Chief Investment Officer could also make a significant contribution to fund performance.

As a result of these factors, there have been instances of equity funds turning in a good performance even after the loss of a talented fund manager. In this case, Mr Sabharwal has been replaced by Mr Sanjay Sinha, who has been managing equity funds for UTI Mutual Fund since 1989.

However, the fund manager's exit is an important event. It merits closer tracking of the fund's performance from now on. Check on the fund's performance over the next few quarters. Consider switching to another fund, if you notice a material slippage in one-year returns when compared to other equity funds or to the indices.

If you plan to hold the fund, you should also keep in mind that the Emerging Businesses Fund is a theme fund that focuses on a few sectors and stocks at a time.

It may, therefore, closely mirror the performance of stocks in a few sectors and is riskier than a plain diversified fund.

Avoid committing more money to the fund for now. Being relatively new, it does not have a track record of outpacing the market across a full cycle. The change in fund manager is just an additional reason for you to be cautious.

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859-860, Anna Salai, Chennai 600002.)

Aarati Krishnan

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