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In recent times, mutual funds have gained immense popularity when it comes to investment avenues for retail investors. More so with the introduction of Systematic Investment Plans where even low-income individuals can invest in Mutual Funds and earn quality returns.
What is a Mutual Fund?
Mutual funds invest in various financial instruments to generate returns for the investors. These financial instruments include equities, debt securities and money market instruments. Based on their allocation to different asset classes in varying proportion, Mutual Funds are classified as Equity Funds, Debt Funds and Hybrid Funds.
If you’re planning to invest for a long term and have a high risk appetite, investment in equity funds is advisable, whereas debt funds are suitable for investors with low-risk appetite with short term investment horizon.
Investment in these financial assets requires in-depth knowledge about the financial markets and its functioning. Since the majority of the investors don’t have the knowledge or time to study the market themselves, MF advisory becomes a necessity in the market.
Who is a Mutual Fund Advisor?
A professional individual or an organisation that offers financial advice to investors on mutual funds is a Mutual Fund Advisor. They are certified professionals who have the expertise of analysing various mutual fund schemes and consequently suggesting funds to investors for investment.
These professionals take into account various parameters such as investors’ investment horizon, risk appetite, and financial goals to curate a list of mutual funds for an investor that s/he can create a portfolio.
A mutual fund advisor is required to have a valid certification to provide his/her services to the investors. Association of Mutual Funds in India looks after proper disbursal of these certifications in a transparent manner.
How Does One Become A Mutual Fund Advisor?
An individual needs to have certain official certifications apart from the in-depth knowledge of financial markets and mutual funds to become a Mutual Fund Advisor. Association of Mutual Funds in India (AMFI) makes it mandatory to MF Advisors to have an advisors’ certification to provide their advisory services.
The certification is issued by the National Institute of Securities Management (NISM). The exam to get the qualification is known as, NISM Series V-A: Mutual Fund Distributors Certification Examination. Post clearing the exam, the AMFI issues an ARN (Application Reference Number), which is a kind of official permission that allows MF advisors to deliver their services.
Besides certifications, an investor should also look for the research and analytical methodology of the advisor, to decide if it is in sync with the wishes and needs of the investor.
What does A Mutual Fund Advisor Do?
Disseminate accurate information to investors:
One of the key roles of an MF Advisor is to give unbiased and exact information about various mutual fund schemes. This includes information about the historical returns data, portfolio allocation of the fund, assets under management, Net Asset Value etc. Here, the main idea is to educate the investor about the basics of mutual fund investment and guide them accordingly.
Analysing investors’ financial goals and risk-appetite
Since most of the individuals in India have little to no knowledge of the financial instruments, it becomes imperative for MF advisors to draft a detailed analysis of various schemes, in accordance with the investor’s financial goals and risk- appetite. Also, sometimes MF advisors are required to chart out the financial objectives and risk tolerance of the investor, since most of the consumers find it difficult to understand their goals and their risk appetite.
Recommend the perfect investment strategy
Following proper analysis of an individual’s financial goals and risk appetite, an MF Advisor is required to recommend suitable investment strategy for different investors.
Their role is to analyse, evaluate and predict the performance of various mutual fund schemes and subsequently suggest funds to investors for investment.
Assist in portfolio diversification
Another crucial responsibility of a mutual fund advisor is to assist the investor in diversifying their investment portfolio, in such a way that it incurs minimum loss during market downturn. A diversified portfolio mitigates the overall risk, with risk of investment in equity being balanced out by appropriate investment in debt or fixed income instruments.
What is the Difference between a Fund Manager and a Mutual Fund Advisor?
People often confuse a Mutual Fund Advisor with a Fund Manager. However, the two are entirely different. A mutual fund advisor advises investors on what funds to invest in, after examining numerous schemes thoroughly, whereas a fund manager or a portfolio manager manages these schemes.
While an MF Advisor helps in designing the investment portfolio of the individual investor which includes advice on what funds s/he can buy, whereas a fund manager designs the investment portfolio of a specific scheme that includes decisions on financial instruments and selection of various stocks. The experience and professional expertise of a fund manager is one of the key criteria that an MF Advisor takes into account while analysing various funds.