Mutual fund advisor: Your trustworthy friend in your investment journey

Investing in mutual funds can seem overwhelming, especially for first-time investors. Mutual Fund Advisors can help investors navigate the world of investing. A mutual fund advisor is an investment professional who helps you choose a suitable fund based on your financial goals, risk tolerance and market conditions.

This article discusses the mutual fund advisors' roles and responsibilities, and the benefits of hiring or becoming a mutual fund advisor.

• Table of contents

• Know about mutual fund advisors
• Roles of mutual fund advisors
• Mutual fund advisors vs mutual fund distributor
• Key regulations for Mutual Fund Advisors
• Why hire a mutual fund advisor?
• Key factors to consider when choosing a fund advisor
• Steps to select a mutual fund advisor
• Criteria to become a mutual fund advisor
• How to become a mutual fund advisor
• Benefits of becoming a mutual fund advisor

Know about mutual fund advisors

A Registered Investment Advisor or RIA is a professional who guides mutual fund investments. These advisors are SEBI-registered. They may also offer services like planning your finances, managing your investments, preparing for retirement and handling your taxes.

Roles of mutual fund advisors

• Assessing investor needs: Understanding an investor’s financial goals, risk appetite and time horizon.
• Recommending suitable funds: Suggesting funds based on an investor’s profile and market conditions.
• Portfolio management: Helping investors maintain a balanced and diversified investment portfolio.
• Educating investors: Explaining market trends, risks and potential returns to ensure informed decision-making.
• Regulatory compliance: Ensuring investments comply with SEBI regulations and industry norms.
• Monitoring investments: Tracking fund performance and advising clients on necessary adjustments.

Mutual fund advisors vs mutual fund distributor

It must be noted that while many investors loosely use the term mutual fund advisor when talking about distributors, they are two distinct entities. Mutual fund advisers are registered with SEBI (Securities and Exchange Board of India) and are authorised to give personalised investment advice based on your financial goals and risk appetite. They follow strict guidelines to ensure they act in the investor’s best interest. Mutual fund distributors, on the other hand, are registered with AMFI (Association of Mutual Funds in India) and primarily focus on selling mutual fund schemes. While they can guide you on available products, they are not allowed to offer customised financial advice.

Key regulations for Mutual Fund Advisors

Mandatory SEBI registration

All individual advisors or firms offering mutual fund advice must be registered with SEBI.

Separation of advisory and distribution

An advisor cannot offer both advisory and distribution services to the same client, which means, they can’t sell you a fund and advise you on it for a fee as it would violate conflict of interest rules

Fee structure

SEBI has implemented a fee structure to regulate the charges imposed by SEBI-registered investment advisors. Advisors can choose from the following two models:

• AUA-based model: Up to 2.5% per annum of the Assets Under Advisory (AUA) per family.
• Fixed fee model: A flat fee of up to Rs. 1.51 lakh per annum per family.

Record maintenance

Registered Investment Advisors (RIAs) must keep comprehensive records of all client transactions and communications.

Read Also: What is a mutual fund: Meaning, types, and benefits

Why hire a mutual fund advisor?

Expertise and knowledge

Advisors have in-depth knowledge of financial markets, mutual fund schemes and investment trends. They analyse market movements and fund performance to help investors make informed decisions.

Time-saving

Choosing a suitable mutual fund requires extensive research. A financial advisor streamlines the process by evaluating multiple funds and selecting the best options based on the investor’s goals.

Risk management

Advisors help investors build a well-diversified portfolio to balance risks and maximise potential returns. They recommend funds suited to an individual’s risk tolerance.

Better risk-return balance

With professional guidance, investors can make strategic investment choices that may yield more optimal potential returns based on their risk tolerance level.

Regulatory guidance

Advisors ensure that investments comply with SEBI regulations, protecting investors from potential legal or compliance issues.

Key factors to consider when choosing a fund advisor

• Experience and credentials: Look for advisors with relevant certifications and industry experience
• Transparent fee structure: Ensure there are no hidden charges in their fee model.
• Reputation and track record: Check client reviews, testimonials and past performance.
• Communication skills: A good advisor should explain investment strategies clearly and answer queries promptly.

Steps to select a mutual fund advisor

• Define your investment goals: Understand your financial needs before seeking an advisor.
• Check qualifications: Verify the advisor’s certifications.
• Evaluate experience: Choose an advisor with a solid track record.
• Ask for references: Speak to past clients for feedback.
• Test their knowledge: Ask questions about market trends and investment strategies.
• Assess their accessibility: Ensure they are available for regular consultations and portfolio reviews.

Criteria to become a mutual fund advisor

• A professional qualification or degree in finance, accountancy, business management, commerce, economics, capital markets, banking, insurance, actuarial science (or other financial services as may be specified) from a recognized university or institution.
• The individual must have cleared the relevant NISM certification as specified by the Board from time to time.

How to become a mutual fund advisor

Fulfill eligibility requirements

Hold a relevant educational degree and possess work experience in related fields.

Clear the NISM certification

Pass the relevant NISM Series examinations for Investment Adviser.

Submit SEBI application

Apply using Form A and attach all necessary documents such as ID proof, qualification certificates, work experience, CIBIL score, net worth certificate, income tax returns, etc.

Await SEBI’s review

SEBI will assess your application and may request additional details if required.

Receive registration

Once approved, SEBI will issue a registration certificate authorising you to provide investment advisory services.

Adhere to regulations

Comply with all SEBI rules and maintain ethical standards in your advisory practices.

Benefits of becoming a mutual fund advisor

Builds trust

Being SEBI-registered shows that you meet the required standards, making you more trustworthy as an investment advisor.

Follows the law

You must stick to SEBI’s rules, which help protect investors from bad practices.

Grow your business

With SEBI registration, you can offer more services like financial planning and portfolio management, which can help you get more clients.

Stay updated

You need to keep learning about new trends and changes in rules to do your job well.

Investor protection

SEBI offers a framework to help solve disputes between investors and advisors.

Read Also: What are mutual fund units?

Conclusion

A mutual fund advisor plays a crucial role in guiding investors through the complexities of mutual fund investments. Whether you're an investor seeking professional advice or someone looking to become an advisor, understanding the roles, responsibilities and regulations surrounding this profession is essential. With the right knowledge and expertise, mutual fund advisors can significantly impact the financial success of their clients while building a rewarding career for themselves.

FAQs:

Who is a mutual fund advisor?

A mutual fund advisor is a professional who guides mutual fund investments. They are SEBI-registered investment advisors who help you make suitable investment choices.

What does a mutual fund advisor do?

A mutual fund advisor assesses investor needs, recommends appropriate mutual funds, manages investment portfolios, ensures regulatory compliance and monitors fund performance to optimise the risk/return balance.

Is mutual fund advisor a good job?

Yes, being a mutual fund advisor can be a fulfilling career if you possess the required educational qualification and financial expertise.

What is the salary of a mutual fund advisor?

SEBI allows RIAs to charge either up to 2.5% of AUA yearly or a flat Rs. 1.51 lakh per annum per family.

How much commission does a mutual fund distributor get?

A mutual fund agent earns a percentage of a client’s total investment value. The percentage depends upon the mutual fund scheme, distributor agreement and regulatory guidelines.