Do you struggle to understand the technicalities of mutual funds? For a layperson who is new to the world of investing, the technical terminologies related to mutual funds can seem daunting. However, that should not stop you from investing. If you want to acquire a certain level of awareness to draft your investment goals and risk profile, a mutual fund advisor can help you. Wondering how? Read on to find out!
A mutual fund advisor provides personalised financial advice. From which fund to invest in to how to build a portfolio after assessing your investment horizon, financial goals and risk appetite.
To fulfil this, a mutual fund advisor tracks various mutual fund schemes and monitors market scenarios in real time. Here’s a list of roles and responsibilities of a mutual fund advisor:
One of the primary roles of a mutual fund advisor is to provide unbiased and accurate information regarding different schemes. This should include details such as past returns, portfolio allocation, Net Asset Value (NAV), assets under management, etc. The key idea is to educate the investors on the basics of investing in mutual funds and guide them regarding the same.
A mutual fund advisor must strive to understand the goals of investors. It is extremely crucial to ascertain whether the investor seeks to create a monthly income, build a corpus, or simply wants to save tax. In addition, the fund advisor must also know whether the investment is made for financing a child’s education or for purchasing a car. In other words, understanding the investors’ short term and long term financial goals is equally important.
An investor’s risk appetite is a crucial factor that determines his/her choice of fund. For instance, the fund advisor might recommend investment in debt funds for risk-averse investors. To determine the risk appetite, advisors usually consider a few factors, such as the investor’s short term and long term financial goals, age, investment horizon, monthly income and financial responsibilities.
After considering the investor’s financial goals and risk appetite, the fund advisor devises the perfect investment strategy. This process may include a combination of various investment options for portfolio diversification to maximise returns and minimise risks. The advisor may also reassess the said strategy if the client’s goals change. The fund advisor also keeps a close eye on the investor’s portfolio and suggests the needed modifications.
Portfolio diversification is the practice of spreading your investments over a broad range to minimise overall risk. Keeping this in mind, a fund manager plays a crucial part in managing unsystematic investment risks. A great deal of research goes into assessing the best investment options across different sectors.
Here’s how to choose a mutual fund advisor:
Experienced fund advisors attract a large number of investors. An experienced fund advisor who has experienced a minimum of one market slump has a lot more assistance to provide. Experiencing one crisis prepares one to deal with future crises in a better way. Thus, the more experienced a fund advisor is, the more he/she will know about how to tackle different market conditions.
A mutual fund advisor may earn commission directly from the fund house or perform the job of a distributor to sell schemes of that fund house. A few mutual fund advisors may also offer particular schemes to customers by estimating their commission first instead of the client’s goals. This is why it is important for you to seek transparency in their mode of compensation.
The way a fund advisor approaches the client’s financial goals is crucial. A seasoned fund manager has a holistic approach with regard to investment planning. To start with, they conduct a detailed risk assessment of the investor, consider the risk-bearing capacity, financial goals and investment horizon to pick the right schemes.
Efficient fund advisors also know that an investor’s objectives might change over time. Hence, they carry timely revisions that align with the investor’s risk profile and financial plans.
You must also request a fund advisor to share referrals of the investors he/she had previously worked with. By doing so, you can contact those investors who have similar investment goals as you. You will get to know more about the fund advisors, the goals he/she has helped his clients to meet and how he/she has performed throughout the years.
After assessing all the points mentioned above, ensure that you take your time to reach a conclusion. Remember that when it comes to investing in mutual funds, it is best to spend time, do some research, ask many questions, and then choose a scheme only if you are completely satisfied. An experienced and reliable mutual fund advisor will never pressure you to decide faster and neglect your conscience.
The process of mutual fund investment can become very convenient with the help of a mutual fund advisor. They have sound knowledge about various mutual funds and will be able to guide you to make the right financial decision. Being aware of a fund advisor’s responsibilities and conducting proper research before investing can help you in the long term.
Ans: Unfortunately, there is no method to know a fund advisor’s past track record. However, you can always ask your fund advisor to share referrals. This way, you will get to know his/her background and the investors he has worked with.
Ans: If the advisor uses a distribution model, he/she will get a commission from the fund house directly. However, a few advisors might charge you a fee for the time they have spent with you regarding your personalised needs.
Ans: Yes, fund advisors are qualified individuals who know the intricacies of mutual funds. Their primary job is to figure out which fund works well according to the investor’s interests and goals. The professional should have a valid certification from the National Institute of Securities Market (NISM).
Ans: Mutual fund advisors are liable to comply with the fiduciary duty to ensure ethical compliance. They are required to disclose every single detail regarding an investment. In addition, fund advisors must also steer clear of conflict of interest and recognise any compensation they get for recommending specific investments.
Ans: The qualifying examination to become a fund advisor is NISM Series V-A: Mutual Fund Distributors Certification Examination. After clearing this particular exam, AMFI provides an ARN number. After this, an advisor should be able to understand investors’ requirements and goals.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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