Young Fund Managers in India: Fresh Ideas or Hidden Risks?

India’s mutual fund industry is witnessing a fascinating shift—a growing dominance of young fund managers with limited experience. According to recent data from Fidom Research (October 2024), nearly 80% of fund managers have less than three years of experience, while those with a decade or more in the industry are exceedingly rare.

This raises a crucial question for investors: Does youthful enthusiasm and fresh ideas outweigh the wisdom of experience, or does it pose hidden risks to investors' hard-earned money?

The Shocking Data: Where Are the Experienced Fund Managers?

According to Fidom Research, here’s the experience breakdown of fund managers in India:

• Less than 1 year of experience – 1,684 fund managers
• 1 to 2 years – 912 fund managers
• 2 to 3 years – 583 fund managers
• 3 to 5 years – 526 fund managers (combined)
• More than 10 years – only 165 fund managers!

This means nearly 80% of fund managers in India have less than 3 years of experience, while only a tiny fraction (less than 5%) have a decade or more of expertise.

What’s the Problem?

The issue isn’t that young fund managers are bad. The problem is experience matters a lot in the financial markets. Investing isn’t just about selecting good stocks—it’s about managing risks, handling market downturns, and making rational decisions when emotions are running high.

An inexperienced fund manager:

? May have never seen a bear market and doesn’t know how to navigate prolonged declines.

? Might be overconfident in a bull market, taking excessive risks.

? Could lack the discipline to protect investors from overvalued stocks.

? May rely too much on past performance, instead of having a sound investment process.

The Rise of Young Fund Managers:

Several factors have contributed to the influx of young fund managers in India:

1. Booming Mutual Fund Industry – With increasing participation from retail investors, fund houses are rapidly expanding and hiring new talent.
2. Digital Disruption & AI-Driven Strategies – Younger fund managers are more adaptable to technology, data analytics, and algorithm-driven investing.
3. High Attrition Rate in the Industry – Many experienced fund managers leave for private wealth management roles, PMS, or start their own firms.
4. Aggressive Performance-Linked Hiring – Fund houses prefer younger professionals who are willing to take aggressive calls to boost short-term performance metrics.

But while fresh perspectives can be an advantage, investing is not just about intelligence—it’s about experience, patience, and understanding market cycles.

Why Experience Matters in Fund Management:

The Risk of Inexperience: Learning from Past Market Cycles

History has proven that market downturns expose inexperienced investors and fund managers who fail to manage risks effectively. Consider these major market crashes:

?? Dot-com Crash (2000-2002): Many tech-focused funds were wiped out because fund managers failed to recognize excessive valuations.

?? Global Financial Crisis (2008-09): Many investors lost wealth as fund managers underestimated the risks of leveraged assets.

?? Most current fund managers were not in the industry during any of these crises.

?? COVID-19 Crash (2020): Investors who panicked and sold their investments at the bottom suffered long-term wealth destruction.

The COVID-19 market crash in March 2020 saw a 40% decline within weeks, only to recover rapidly. Experienced fund managers used the crash to buy quality stocks at cheap valuations, while many inexperienced ones froze in fear or exited at a loss.

A fund manager who has not lived through market downturns may panic or make poor decisions, causing significant wealth erosion for investors.

?? Can they handle the next big downturn?

1. Understanding Market Cycles

1. Understanding Market Cycles

Markets go through predictable yet uncertain phases:

• A bull market makes everyone believe they are financial geniuses.
• A bear market tests patience and discipline.
• Corrections (5-10% falls) happen twice a year.
• Crashes (30-50% falls) occur every decade.

An experienced fund manager knows how to balance aggression with caution and understands when to take risks and when to preserve capital.

Stock market declines and the art of asset allocation for smart investors

2. Asset Allocation is Key

Investing is not just about picking stocks; it’s about balancing asset allocation between equity, debt, gold, and international markets.

• An experienced fund manager understands when to increase cash holdings to protect wealth during high valuations.
• Young managers, in their quest to outperform, might remain fully invested at all times, missing crucial opportunities to buy low and sell high.

3. Risk Management Over Performance

A common mistake among new fund managers is the obsession with short-term returns to showcase superior performance.

• This often leads to over-diversification (holding too many stocks) or concentration (too few stocks in the portfolio).
• Smart investors know consistent risk-adjusted returns are more important than high returns in a single year.

??The Role of Investors: What Should You Do?

While professionals manage mutual funds, investors must take responsibility for selecting the right fund managers. Here are three crucial steps:

1. Look Beyond Past Performance

• Just because a fund has given 30% annual returns in the past two years does not mean it will continue doing so.
• Always analyse the fund manager’s strategy, stock selection, and handling of market downturns.

2. Prefer Experienced Fund Managers for Long-Term Investments

• If you are investing for long-term goals like retirement or child education, go for fund managers with at least 15+ years of experience.
• They are battle-tested and have successfully navigated multiple bull and bear markets.

3. Review the Fund Manager’s Investment Philosophy

• A long-term investor needs a fund manager with a disciplined investment process, not someone chasing the latest market trend.
• Avoid funds that take excessive risk to improve short-term rankings.

4. Be Wary of Aggressive Sales Pitches

• Many new fund managers promote high-return promises without highlighting the risks.
• If a fund manager has not seen a full market cycle, be cautious.

5. Seek Guidance from an Experienced Financial Expert

• Instead of relying on marketing hype, consult a personal financial expert with 20+ years of experience.
• DIY (Do-It-Yourself) investing is risky if you don’t understand market behaviour.

??Final Thought: Experience is an Asset, Not an Expense

Mutual fund houses may prefer younger fund managers due to their energy, adaptability, and lower cost, but experience in the financial world is not an expense—it’s an asset.

• Would you trust a pilot with only one year of flying experience to navigate a plane through turbulence?
• Would you prefer a doctor fresh out of college to handle your critical surgery?

If the answer is NO, then why should investing be any different?

Smart investors do not chase short-term returns. They choose wisdom over-excitement, discipline over aggression, and long-term stability over short-lived success.

India’s mutual fund industry is evolving, but experience should not be sacrificed for enthusiasm. Investing is not about quick gains but about long-term financial security. As investors, choosing the right fund manager is just as important as selecting the right fund.

Before you trust a mutual fund with your hard-earned money, ask yourself:

• Has the fund manager managed investments through multiple market crashes?
• Does the manager have a long-term vision, or is he chasing short-term returns?
• Is your investment aligned with an expert-backed strategy, or is it based on marketing hype or past performance?

Experience, patience, and risk management are the pillars of successful investing.

Choose wisely because in finance, direction is always better than speed.

Your money deserves wisdom, not just excitement. Choose wisely.

Disclaimer:

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of the future performance of the schemes.

Kirang Gandhi is a Pune-based financial mentor with an impressive track record of over 25+ years in the personal financial?market.

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