Mutual Fund Distributors in India: All you need to know

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Even in this time and age of technology, the lack of information and knowledge among the scattered population requires it to be brought into perspective, this certainly is the job of a mutual fund distributor. From guiding an investor about the best scheme to dispersing the best available knowledge about mutual funds in India, mutual fund agents need to do more than a full-time job.

Who are Mutual Fund Distributors?

Intermediaries play a vital role in the world of investment be it stock market, open market investments or mutual funds. Mutual Fund Distributors are nothing but intermediaries who play a pivotal role in promoting the sale of mutual funds. These intermediaries are regulated and registered under Securities Exchange Board of India (SEBI) and Association of Mutual Funds (AMFI). AMFI suggests that a mutual fund distributor must be a person of high ethics and integrity.

mutual fund distributor helps the investors to make viable decisions when it comes to investing in the right mutual fund schemes that are a fit based on their requirements. One may wonder in what form these mutual fund distributors earn revenue. Well these distributors in return for helping the investors to make a transaction, earns a decent commission.

These distributors are also known as mutual fund agents. The substantial work of these agents is to track the performance of mutual fund industries. They need to conduct qualitative as well as quantitative analysis by using a comprehensive database and monitor these funds regularly. The major part of their job is also to keep an eye on essentials related to the industry, Indian market and its economy, so that they themselves are well-informed before guiding an investor. 

Additionally, these distributors do a well certified job in coordinating and collaborating with mutual fund houses from distinct time to time. This survey helps them to identify the reliable investment options for their appointed investors. This works in a full circle between an investor to an agent to a mutual fund scheme. 

Eligibility of a Mutual Fund Distributor

After being all hyped up about the job description of a mutual fund agent, the question arises how can one become a mutual fund distributor? Under which agency are they registered? 

Mutual Fund Distributors have a significant impact in the mutual fund industry and therefore the criteria to become eligible for a mutual fund agent is as uncompromising.

AMFI introduced a severe procedure for registration of a distributor, the conditions of which are:

  • First and foremost, the minimum age of the potential distributor must be 18 years of age.
  • The candidate must qualify for either class 12 or class 10 with three years of diploma.
  • To be registered as an agent, the candidate needs to pass the certification test: NISM Series V-A. SEBI has declared it to be mandatory for registration.
  • On passing the NISM certification test, the candidate shall be issued an AMFI Registration Number (ARN). This ARN will make the candidate eligible to be registered under AMFI as a mutual fund agent. 
  • Along with ARN, the candidates shall also be entitled to an Employee Unique Identification Number (EUIN). 
  • The NISM certification is said to be valid for around 3 years from the date of examination. 
  • It must be noted that no distributor shall be found in possession of  more than one ARN card or letter of registration
  • After the candidate has obtained ARN, he must approach the AMCs for empanelment and they shall canvassthe  mutual fund business of these AMCs after they have empaneled with them.
  • The registered intermediaries must be cautious of the fact that they can be de-registered as the ultimate censure in case of the following:
  1. In case of violation of the code of conduct.
  2. If an intermediary is being indicted for serious offenses as per the regulatory authority.
  3. In case of gross negligence complaint upheld by a consumer court.
  • It is interesting to point out that in case a senior citizen wishes to become a mutual fund distributor or an agent, he must attend the Continuing Professional Education training module i.e. the CPE program. After completing the CPE program, the candidate shall be required to complete the documentation process and  apply for ARN as mentioned earlier. 

AMFI suggests a distributor to participate in the endeavor of promoting mutual funds at their best practice and ethical standards. They must remember to have the best interest of the investors and guide them with utmost due diligence and care.

Responsibilities of a Mutual Fund Distributor

A good distributor is one who can apply the requisite skills and address the concerns of the investors. He must be able to study an investor’s profile thoroughly and provide the best investment advice and make them aware of the relevant schemes as per their profile. Let us look at some of the major responsibilities of a mutual fund agent.

  1. Understanding the investor's portfolio : The primary requirement of a mutual fund agent is to understand the demands of an investor and devise a viable investment plan according to the same. To achieve this he must understand the vision of the investor in relation to the investments and what he wishes to derive from the plan.
  2. Educating the Investor: After understanding the investor's requirement, they need to educate these retail investors on how to achieve their ideal investment plan. This involves scanning through different investment options. Hence, evaluating the client’s financial goals. 
  3. Evaluating Investor’s Risk Tolerance: Before finalizing an investment plan, it is crucial for the distributor to understand the risk appetite of the investor and accordingly construct a strategy based on the risk tolerance level of such investor. To understand this, take for example an investor's wishes for a low-risk plan, then investing in debts must be a viable option than that of in equity, Hence the the distributor must take into account all the fundamentals such the financial goals, investment period, family status, expenses and savings as well as current financial dependency of the investor  before he devise an investment strategy. 
  4. Analyzing Investment Options: Once the agent has gauged the investor’s goals, he understands the market conditions. He needs to spend time analyzing technical charts and financial conditions of the market to come to a strategically invented plan.
  5. Devising an Investment Strategy: After everything is in order, the agent needs to  construct an investment strategy that must involve diversified investment options to minimize investor’s risks and maximize their returns. The job doesn’t end here, the agent must keep an eye on the investor’s goals as the investor's portfolio shall call for a frequent assessment of the strategy as per the investor’s changing requirements.
  6. Documentation: As far as investing is concerned, documentation plays an important aspect. An agent is expected to handle all the discretionary financial details of the respective investor .This documentation has been mandatory during the audit of a firm by regulatory bodies.

What is the difference between Mutual Fund Distributors and Investment Advisors?

A mutual fund distributor mainly suggests the right kind of mutual fund that could suit an investor on the basis of his/her risk appetite. On the other hand, an investment advisor recommends the right kind of investment plan according to one's total assets and liabilities while keeping in mind the total expenses and incomes. Also, keep in mind that a mutual fund distributor cannot sell any mutual fund that is deemed unfit for an investor, as it amounts to "mis-selling" which is an offense. Mutual fund Distributors, as we had mentioned above, are registered with the AMFI while an investment advisor is registered with the Securities and Exchange Board of India (SEBI).

How to choose a Distributor

An investor’s portfolio relies on a distributor's skills, therefore it is important for an investor to choose his mutual fund agent wisely. Following are some of the guidelines while choosing a mutual fund distributor:

  • Take a good look at the experience of the distributor in the financial market.
  • Request for referrals from the mutual fund distributor. This helps to validate their services 
  • Look for an agent who can expressively understand your financial goals, background and accordingly device you the custom-made investment strategy.
  • An investor must do an expressive research before finalizing a distributor and must not take rash or influenced decisions.
  • Understand the documentation and terms related to schemes that your distributor is offering and cross check its validity to understand the integrity of the agent.
  • Make sure the distributor comply with AMFI and SEBI requirements and have proper certification, so as to save yourself from any kind of theft or fraud.

The primary job description of a mutual fund distributor is to bring convenience to the retail investor. He must be able to help investors manage their mutual fund portfolio explicitly and efficiently. The mutual fund distributors must strive to gather enough knowledge and experience in the financial market. So as to evolve better strategies and help the investors achieve their financial goals by minimizing their risk and earning maximum potential returns. 

The thrill of becoming a mutual fund distributor is real, so if you are someone who is extensively interested in the field, it is worth a shot.

  • Is it mandatory to qualify the NISM Exam to become a Mutual fund Agent in India?

  • How is the NISM exam conducted?

  • What are the career prospects of being a mutual fund agent?

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