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The digital age has made information easily accessible, but choosing the right mutual fund scheme can still be challenging. This is where a mutual fund distributor plays a vital role. With their experience and expertise, they guide investors in selecting the most suitable mutual fund schemes based on individual financial goals.
In this article, we will discuss who a mutual fund advisor is, the responsibilities of a mutual fund agent, and the requirements for becoming one.
Middlemen play an important role in the world of investment, which covers the stock market, open market investments, mutual funds, etc. A mutual fund distributor acts as a middleman, promoting and facilitating the sale of mutual funds. They must be registered with the Securities Exchange Board of India (SEBI) and the Association of Mutual Funds of India (AMFI). A mutual fund agent must possess high moral standards and integrity, according to AMFI.
The investors can make sensible and practical decisions with the assistance of a mutual fund advisor when it comes to investing in the most appropriate mutual fund schemes based on their budget, risk appetite, financial goals, etc.
So, it is clear that investors can meet their financial goals with the help of a financial advisor. Now, the question is… what benefit do the mutual fund agents get out of helping the investors? When the mutual fund agent helps the investors, they earn decent money in the form of commission that’s good enough for them!
The term ‘mutual fund advisor’ is synonymous with ‘mutual fund agents,’ so there’s no need to get confused between the two. The major task of a mutual fund agent is to track mutual fund industries’ performance, based on which they need to conduct a qualitative and quantitative analysis with the help of a comprehensive database. They are required to closely monitor the mutual funds on a regular basis. In addition to this, the mutual fund agents must keep an eye on the investment industry, Indian market, economy, etc., so they can guide their investors in a proper manner. Mutual fund agents coordinate and collaborate with mutual fund houses every now and then, since doing this helps in identifying the investment options and creating a database with all the fund recommendations for the clients or investors.
If you’re interested in obtaining a mutual fund distributor license, you can get in touch with Registrations for assistance!
A mutual fund distributor must responsibly make use of his expertise to address the concerns of the investors. Before providing investment advice, the mutual fund advisor must study the investor’s profile carefully to be able to offer the best advice. The financial advisor must advise the investors on all the relevant mutual fund schemes based on their profile.
Now, let’s go through the responsibilities of a mutual fund agent:
Understanding the Investor's Portfolio: A mutual fund advisor must analyze the investor’s financial goals and develop a personalized investment plan. This involves assessing their needs, expected returns, and long-term objectives.
Guiding the investors based on their financial goals: Having understood the investor’s requirements, the mutual fund distributor must educate them on how to achieve their ideal investment plan. For this, the mutual fund agent has to scan through different investment options, which they can guide the investor on based on the latter’s financial goals.
Evaluating the risk appetite of the investors: Before an investment plan is executed, the mutual fund advisor must understand the investor’s risk appetite. Some investors are willing to take higher risks; other investors like to play it safe or take low/moderate risks only. It is the responsibility of the distributor to understand his client’s risk tolerance and construct a strategy accordingly. Fundamentals like the investor’s financial goals, the period he wants to invest for, income, expenses, and savings must all be taken into account while the mutual fund distributor is constructing the strategy.
Examining the investment options: The financial advisor has to understand the market’s present condition. For this, they are required to spend time analyzing the technical charts and the market’s financial conditions while constructing the strategic plan.
Constructing an investment strategy for the investors: At the time of formation of the strategic plan, the distributor has the goal of minimizing the risk of the investor and maximizing their profit. The mutual fund advisor is responsible for assessing the strategy frequently as per the changing requirements of the investor.
Documentation process: Documentation is critical. The mutual fund advisor is responsible for handling all the financial details of the investor in a disciplined manner. This documentation is crucial during the time a company’s audit is conducted by the regulatory authorities.
The investors put their hard-earned money in investments with the hopes of getting decent returns. This is why it is extremely important for the mutual fund agent to be professionals that are of high moral character and integrity.
The eligibility criteria for becoming a distributor are uncompromising. The following are the requirements for becoming a mutual fund agent, according to AMFI.
The candidate must be at least 18 years of age.
They must have obtained either a class 12 or class 10 diploma with 3+ years of experience in a relevant field.
They must pass the certification test known as NISM Series V-A and receive an AMFI Registration Number (ARN) in order to become a mutual fund distributor.
In addition to the above, the candidate must also receive the Employee Unique Identification Number (EUIN).
If a senior citizen wants to become a mutual fund advisor, he is required to attend the Continuing Professional Education (CPE) program. Once the CPE program is completed, he must complete the documentation process to apply for ARN.
It is important to note that the validity of NISM certification is for 3 years from the date of examination. A mutual fund advisor cannot hold more than one registration letter or ARN card under any circumstances. It is important for the distributors to be aware that they can be de-registered if they violate the code of conduct, commit serious offenses, or if a consumer court upholds a gross negligence complaint.
MFDs are eligible for trailing commissions when they source investors that are outside the top 30 cities. The trailing commissions are as mentioned below.
T-30 cities: The commission rate is as per the standard rate in the top 30 cities across India. No additional perks or bonuses are provided for sourcing clients from these cities. Generally, the commissions range from 0.1% to 2% depending on the fund house and the mutual fund type.
• B-30 Cities: These are cities outside India’s top 30 urban centers. Mutual fund distributors in India earn additional incentives for onboarding clients from these areas, alongside the standard commission of 0.1% to 2%, depending on the mutual fund type.
In addition to the regular income, extra incentives can be offered on every investment made during the 1st year. The distributor enjoys a special commission on each investment along with the standard commission of 0.1% to 2%.
In order to prevent investors from financial frauds by the distributors, AMFI has initiated certain penal actions. This includes the suspension of ARN holders and instructing all AMCs to suspend commissions, trail commissions and any incentives of the MFDs. SEBI had instructed AMFI to make the distributor registration stricter. Because of this, mutual fund distributors in India are now mandated to comply with a rigorous registration procedure called ‘Know Your Distributor’ or ‘KYD.’.
KYD involves obtaining all the relevant documents of the distributor and validating them. Under KYD, the personal information of the distributor is verified, and the biometrics are also done. The KYD process was started by AMFI in the beginning of September in 2010. The mutual fund distribution companies have to submit their identity proofs, address proofs, PAN, and bank details. In addition to this, ARN registration applications have to be submitted simultaneously. The KYD process can be carried out through AMFI’s CAMS POS centers.
Mutual fund distributors facilitate the investors at the time of buying and selling mutual funds. In return, they get to enjoy commissions and sometimes additional perks and bonuses. SEBI and AMFI both are responsible for regulating the MFDs. The distributors have to carefully study the investors’ profiles and provide them with the best investment strategies based on their budget, risk tolerance, and financial objectives. We hope this article clarified the role and responsibilities of a mutual fund distributor. If you're considering becoming one or need assistance with the licensing process, contact the Registrationwala team for expert guidance.
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