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How Do Fund Managers Make Crucial Investment Decisions?

Posted on 24-May-2024

6 min read

Keen on understanding how fund managers make investment decisions in India? Read through this blog post by Shriram AMC to find answers to your queries.

Table of Content

Investing in mutual funds allows you to harness the expertise of financial professionals. But wouldn’t you want to know where and how exactly your fund manager handles and invests your money? How does this skilled person make your money work for you? Is there a blueprint to successful investing that fund managers follow? Because if there isn’t why would investors entrust fund managers with their hard-earned money?

These are a few pertinent questions that pass through the minds of investors across the world, and rightfully so. Hence, the decision to take up this crucial topic up for discussion in this blog post. Without delaying any further, let us learn all about how fund managers make investment decisions.

What Is a Fund Manager?

A fund manager is a financial professional who allocates the investment in different mutual funds. But there is so much more to their roles and responsibilities that they deserve more than just this one-line description. More on that later!

A mutual fund manager is essentially the captain of your mutual fund ship. They are responsible for researching, selecting, and buying and selling investments (stocks, bonds, etc.) that align with the fund's stated objectives. They steer the fund's course towards achieving its goals, which can be anything from capital appreciation (growth) to generating regular income.

There are essentially two kinds of funds managers—active and passive. Let’s look at the differences between these two types of fund managers in the next sections.

Active Fund Managers Vs. Passive Fund Managers

In the world of investing, two main approaches battle for dominance: active management and passive management. Each relies on a different type of fund manager. Let's dive in and explore the key differences between Active Fund Managers and Passive Fund Managers.
Active Fund Managers Passive Fund Managers
  • Actively try to beat a benchmark index (e.g., Nifty 50).
  • Conduct in-depth research and analysis of individual companies.
  • Analyse economic trends to find undervalued or promising investment opportunities.
  • Don't attempt to outperform the market.
  • Aim to mirror a chosen index by holding its constituent stocks.
  • Invest in proportion to the stock's weighting within the index.
  • Typically have lower fees due to reduced research needs.

What Are the Roles and Responsibilities of a Mutual Fund Manager?

Like we mentioned once before, the roles and responsibilities of a mutual fund manager are far too complex to be condensed in just a sentence. Here is a closer look at what they do:

•    Portfolio Construction and Management: They build the fund's portfolio by selecting the right mix of assets (stocks, bonds, etc.) to achieve the fund's goals while managing risk.

•    Risk Analysis and Management: One of the most important responsibilities of a fund manager is analysing and mitigating risks that mutual funds come with. Every mutual fund, no matter how low they rank on the Risk-o-Meter, have inherent risks. A skilled fund manager knows how to pick funds with the least risk exposure and build portfolio that offer maximum diversification.

•    Research and Analysis: This is the backbone me of active management. Fund managers, along with their analyst teams, meticulously analyse companies, industries, and economic indicators to make informed investment decisions.

•    Strategic Decision-Making: Market conditions and economic factors are constantly evolving. Fund managers need to make crucial decisions on buying, selling, and rebalancing the portfolio to adapt to changing scenarios.

•    Track Fund Performance: Fund managers always need to keep a weather-eye on the performance of the funds they have invested in. They can exit any underperforming securities and choose better performing ones to produce higher returns.

•    Compliance: Fund managers must ensure all their activities comply with SEBI regulations and the fund's investment mandate.

How to Evaluate the Expertise of a Fund Manager

Evaluating a fund manager’s expertise could be tricky, especially if you are fairly new to the domain. But here’s a rule of thumb (more than one rule, if we are getting precise) that can help you make the right choice:

•    Investment Philosophy: Does the manager's style (growth, value, etc.) align with your risk tolerance and investment goals?

•    Past Performance: Look at the fund's historical returns and compare them with the benchmark index (for actively managed funds).

•    Experience and Expertise: Evaluate the fund manager's experience in managing similar funds and their qualifications.

•    Expense Ratio: This fee covers the fund's operational costs, including the fund manager's compensation. Lower expense ratios generally translate to higher returns for investors.

How Do Fund Managers Decide Where to Invest? 

We are now at the last leg of our discussion. Let us now understand how fund managers decide where and how to invest, and what factors they base their decisions on:

•    Market Analysis: Fund managers assess stock market trends and volatility to understand potential risks and opportunities.

•    Industry Research: They delve into industry competition and macroeconomic forecasts to evaluate the overall health of a particular sector.

•    Company Performance: In-depth analysis of a company's financial statements and past performance helps them identify strong businesses with sustainable growth potential.

•    Management Expertise: The experience and capabilities of a company's leadership team are crucial factors considered during the evaluation process.

Final Notes

By understanding how fund managers make investment decisions and how to assess their performance, you can make informed choices when selecting mutual funds for your investment portfolio. Remember, past performance is not always indicative of future results, so a comprehensive evaluation is crucial.

Trusting fund managers of reputed asset management companies like Shriram AMC, for your investments can prove to be useful in the long run. Always do your research and choose fund managers with the same investment styles as yours. This can help you understand your investments better and keep you aligned with your fund manager’s objectives.


Here are a few commonly asked questions about fund managers and how they manage investments:

1.    Are actively managed funds always better than passively managed funds?

Actively managed funds aim to beat the market, but achieving consistent outperformance is challenging. Passive funds, which track an index, offer lower fees and predictable returns that can be on par or even outperform some actively managed funds over the long term. The choice depends on your investment goals and risk tolerance.

2.    How often do fund managers trade within a portfolio?

Trading frequency varies depending on the fund's investment strategy. Actively managed funds may trade more frequently to capitalize on short-term opportunities, while passively managed funds typically have lower turnover due to their focus on mirroring an index.

3.    What role does the fund manager's team play in investment decisions?

Fund managers rarely work alone. They often have analyst teams who assist with research, data analysis, and generating investment recommendations. The final decision, however, rests with the fund manager.

4.    Do fund managers consider social and environmental factors when making investment decisions?

An increasing number of fund managers are incorporating Environmental, Social, and Governance (ESG) factors into their investment analysis. This reflects a growing focus on sustainable investing and companies with strong social responsibility practices.

5.    How can I stay informed about a fund manager's investment decisions?

Mutual fund houses publish regular reports detailing the fund's portfolio holdings and investment rationale. You can also access information through the fund's website or annual reports.

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