Know the efficiency of your mutual fund manager

Here is a list of fund manager mistakes that can possibly lead a mutual fund to total failure. Getting knowledge on these mistakes will lead you to do the required research prior to apply for any mutual funds.

Mistake #1 - Trading or shot term investing approach.

Remember, if your fund manager using any trading approach or buying stocks to the mutual fund portfolio with short term investment approach, you are in trouble. Instead of creating wealth he is trying washing out your wealth with his brainless approach. Get out from the fund as early as possible, to save the remaining amount you have with the fund as invested.

You can easily identify this bad approach by monitoring your funds stock portfolio multiple times in a month or quarter.

Mistake #2 - Over diversification

This is another error commonly happening from immature fund managers. This will lead the stock portfolio to immense lose by holding the laggards and not selling the bad stock in right time. Due to huge number of stocks, it will be difficult to get enough concentration to each an every stocks and to its performance to have better holding or selling decision.

You can identify this error by getting the stocks that is in the mutual fund portfolio. Generally all the mutual fund companies providing report with each funds major holding and all other stock in the portfolio. It will also give the information of each sectors. Whether the holding period is short time or long time, over diversification always lead to lose than creating wealth and it is the result of having little knowledge.

Mistake #3 - Less diversification

Less diversification also dangerous for any mutual fund investors. Through concentrating very less sectors, your fund is in high risk due to any possible slowdown with the sectors that your fund focused to.

You can use the same idea mentioned under Mistake #2 to identify this error by any fund manager.

Mistake #4 - Managing huge number of funds at a time

There is no information required on this about how a mutual fund going to failure if the fund manager struggling with various funds than yours. In better words, there will not be any or very less focus he can give to any fund that he managing because of the number of funds he have.

You can collect the details about fund managers and information on all the funds managing by him, from the mutual fund office or online. Please note, some of the funds in his portfolio may be performing well but, that is not a guarantee for the performance of all the funds that managing by him. Such performance on any fund may happen by his dedicated focus to that fund as his flagship fund.

Mistake #5 - No any activity for long term

Some mutual funds especially funds that using contrarian investment approach, might have long term holding focus. Fund managers generally use selective approach to buy the stocks they believe that have long term prospective, will keep in the portfolio for long term. Due to the nature of long term, there would be chance to lose his concentration to the fund.

As an investor, you need to monitor the portfolio of such fund time to time to identify whether it is a dead portfolio or not, to hold or avoid such mutual funds.

Hope this article help you to take better mutual fund investing practices. Now it is the time to comment and appreciate the same.