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Can a retail investor be her own fund manager?

05 Jan 2023

One of the common questions that many investors do ask is why cannot they be their own fund managers. Take the example of a mutual fund SIP. Here an investor allocates a fixed sum of money each month and the fund manager then invests the entire corpus based on tested investment logic. If the idea is about quality equities, then even individual investors should be able to do their own SIP by buying a fixed amount of equities consistently over a period of time. There are 3 questions that arise here. Firstly, how to be your own investment manager? Secondly, does it make investment sense managing your own investment portfolio? Lastly, if so, what is the best way to invest on your own?


Pros of being your own fund manager..

 If you are you are you own fund manager then there are certainly certain distinct advantages that come with it. Firstly, it eliminates any external bias in stock selection. After all, when you are invested in mutual funds or in a portfolio management scheme your investment portfolio is subject to the investment philosophy of the fund manager. When you manage your own money, the portfolio is coloured more by your own thought process. Secondly, it certainly reduces cost. Of course, the transaction costs of market participation are still there. However, such costs may be lower than the expense ratios that a mutual fund will load on to your fund. Thirdly, it gives you greater flexibility as you are in control of the entire corpus. Unlike in an equity mutual fund, you do not have to worry about exit loads in case you choose to exit early. Lastly, mutual funds that are diversified do not ride trends as they have thousands of investors to cater to. As your own fund manager, you have greater flexibility to align your risk and portfolio concentration in-line with your view on the market.


Cons of being your own fund manager..
However, being your own fund manager also is fraught with some key risks. Here are a few of them..

The big challenge is on diversifying risk. Mutual funds by virtue of their vast corpus are able to diversify your risk across a larger range of stocks. That reduces you risk in the market. As an individual investor, there is a limit to the diversification that you can do.

When you are a fund manager, stock selection is not just about stock quality but also about portfolio correlation. That means if you buy 10 stocks which are all good stocks but are all vulnerable to interest rate movements then you are actually adding on a lot of risk. Mutual funds, with their expertise can better manage such correlations.

Speed of information dissemination is another challenge. Imagine that you are an investor holding on to a stock like Amtek Auto or Videocon when the stock got downgraded by the rating agencies. The stock cracked sharply and as your own fund manager you would have been left with huge losses. Professional fund managers handle such situations better.

Keeping a tab on your portfolio is another big challenge. We live in a dynamic market where information and intelligence gets update every second. Keeping track of news, announcements, corporate actions, industry trends, and bulk deals about all the stocks you own is practically difficult. That is where professional research comes in handy.

The bigger challenge comes in other asset classes. It is easy to buy equities in whatever size you want as it directly goes into your demat account. But you cannot buy government securities in small quantities. After all, you need debt in your portfolio for stability and regular returns.

How to be your own investment manager?

Managing your own investment portfolio is easier said than done. Practically, it is fraught with risks. The best way to manage your own investment portfolio is to leverage on the technology solutions provided by your broker. For example, Motilal Oswal provides its investors with algorithmic solutions that are backed by accumulated man years of experience and sharp insights. Such algorithmic platforms allow you to create your own portfolio after considering the risks involved and in tune with your return requirements. These can be a starting point if you are looking at the best way to invest on your own. So what do these powerful algorithms do?


It combines the power of screeners with customization to your unique needs. That means you not only get ideas on good stocks but also stocks that are actually good for you in particular. Remember, your biggest investments must be aligned to your financial plan. Your financial plan begins with your goals in mind and works backward to determine your asset mix. Here, mutual funds offer the flexibility and robustness to design the mix of your equity and debt to take care of your return and risk requirements as well as your liquidity and tax matrix. For your direct equity portfolio, you can leverage the power of technology engines provided by your broker, but let your long term goals not be dependent on this portfolio. This can certainly be a starting point for you to start managing your own portfolio. In fact, combining the power of technology and your advisor’s insights is the best way to invest on your own!

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