Why you should not be mimicking a fund manager?
Why pay a fund house to invest in stocks, say some first time investors. When they come to know that the fund house declares its investment portfolio monthly, they think that it is even easier to invest - just buy what the fund manager buys and sell when he sells. However in real world it may not be as easy as it sounds.
There are hundreds of schemes and many successful fund managers. Choosing one of them is a task. Even if you zero on one with good long term track record what if he underperforms for a year or two? Are you going to stick to your decision of mimicking him? To add to your woes, fund managers manage more than one schemes and each scheme's portfolio has around 50 stocks on an average if not more. Can you keep buying and selling so many stocks?
Even doing it at the right price is a problem. Scheme's portfolio is declared at the end of month. Though you know the portfolio at the end of the month, you are not aware of transactions he did and reversed within a month. In case of actively managed funds, this can make a big difference. As you are getting the information with a lag, you cannot buy and sell at the prices the fund manager does.
Transactions costs for the fund are less in percentage terms given the large pool of money it manages. This results in the higher post-cost returns in fund's hand compared to an individual who is carrying out similar transactions with a smaller asset base. With so much difficulty even if one manages to follow a fund manager, it is highly likely that he will have to settle for much lower returns in hands.
Why pay a fund house to invest in stocks, say some first time investors. When they come to know that the fund house declares its investment portfolio monthly, they think that it is even easier to invest - just buy what the fund manager buys and sell when he sells. However in real world it may not be as easy as it sounds.
There are hundreds of schemes and many successful fund managers. Choosing one of them is a task. Even if you zero on one with good long term track record what if he underperforms for a year or two? Are you going to stick to your decision of mimicking him? To add to your woes, fund managers manage more than one schemes and each scheme's portfolio has around 50 stocks on an average if not more. Can you keep buying and selling so many stocks?
Even doing it at the right price is a problem. Scheme's portfolio is declared at the end of month. Though you know the portfolio at the end of the month, you are not aware of transactions he did and reversed within a month. In case of actively managed funds, this can make a big difference. As you are getting the information with a lag, you cannot buy and sell at the prices the fund manager does.
Transactions costs for the fund are less in percentage terms given the large pool of money it manages. This results in the higher post-cost returns in fund's hand compared to an individual who is carrying out similar transactions with a smaller asset base. With so much difficulty even if one manages to follow a fund manager, it is highly likely that he will have to settle for much lower returns in hands.
Happy Investing
Source:Moneycontrol.com
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