If a manager change is due to an internal reshuffle in the AMC (say a senior fund manager being elevated to CIO), it isn't a big worry, as you can budget for some continuity in strategy and style. But when the manager of your scheme bids adieu to the fund house, you certainly need to be on your watch.

You should take fund manager churn very seriously in the following circumstances.

• When your equity scheme was managed by a seasoned manager who has weathered two or three market cycles and he quits.
• When the manager of your micro-cap or mid-cap fund quits.
• When a scheme with a value or contrarian mandate sees a manager change. The Indian market is overcrowded with growth-style investors, so being a value investor or contrarian requires experience and conviction.
• When your fund is a multi-cap, 'opportunities' or tax-saving fund, its mandate is usually loosely defined, allowing the fund manager to freely shift around the style or market cap in the portfolio. Schemes with such loosely defined mandates, if they are good performers, can see a significant impact if the man or woman at the helm changes.

So assuming the worst has happened and the manager of a performing equity scheme has called it quits. What do you do now? Well, don't immediately panic and jump ship, but watch the fund's performance closely for the next six months. Be wary of slippage in the scheme's ranking within the category and returns relative to its benchmark.

Returns apart, there are other parameters that can signal that big (and undesirable) changes are underway in the scheme's portfolio, too.

1.  Watch for a spike in the scheme's portfolio turnover ratio. If the monthly factsheet shows a spike after a fund-manager change, it is a sign that the new manager is replacing a good part of the portfolio, which can lead to changes in the returns or risk profile.

2. A shift in the scheme's market cap composition – from a large-cap tilt to a mid-, small-cap tilt, can also be a hint that the new manager isn't comfortable with the earlier strategy. A higher mid/small-cap weight can mean more risk and volatility.

3. Check out the fund's portfolio P/E and beta. A spike in the portfolio P/E can be a sign of the scheme moving from a value to growth focus. A shift from a low beta to a high beta (beta is the tendency of the portfolio to move with the market) is also an indicator of higher correlation to the market and thus higher risk.

If you own a top-ranking equity scheme and notice a slippage in performance after a fund-manager change, check out the above indicators.

A deterioration in performance, accompanied by a shift in strategy, market-cap or style, is good enough reason to sell the scheme and switch to a better alternative.