How to Become an Adviser for Mutual Funds
By: Urvashi Arya
Qualified experts known as mutual fund advisors advise investors on investing in mutual funds. By considering their risk tolerance, financial objectives, and investment horizons, among other factors, the advisors offer their customers or investors individualized financial advice. They would gain income by receiving commissions from distributors or fund houses to sell mutual fund schemes.
Mutual fund advisors provide their experience in choosing and creating a portfolio of mutual fund schemes that align with their investors' financial objectives. To do this, mutual fund agents must monitor the performance of numerous mutual fund schemes with diverse investment objectives and stay informed of significant financial market events that could affect the performance of the mutual funds.
They would continue to choose the finest funds for their clients' investments by adhering to a strict qualitative and quantitative approach. The advisors would also advise the investors on updating their portfolios after their initial investments, such as adding or removing schemes, increasing SIPs, pausing SIPs, etc., when they identify any market-related difficulties or potential opportunities that may help improve the client's wealth.
According to AMFI (Association of Mutual Funds in India) guidelines, passing the required "NISM Series VA Mutual Fund Distributors Certification" examination and obtaining an ARN number are prerequisites for becoming a mutual fund distributor or agent.
What function do advisors to mutual funds perform?
When interacting with or sustaining relationships with their clients to assist them in growing their money or achieving their financial goals through investments in mutual fund schemes, mutual fund advisors must take on various significant duties. An important function performed by a mutual fund agent is:
1. Recognizing the investors' financial demands
The mutual fund advisor must know the investors' clients' financial goals and demands. They must communicate with investors to ascertain their objectives and the time needed to achieve them. They only offer customers advice based on their investments' goals, such as retirement, wealth growth, preparing a child's further education, purchasing a car, or organizing a trip. Everyone has different financial needs, and to meet those needs on time, the investing strategy must align with those needs.
2. Informing investors:
The mutual fund representative must inform the investor about the financial products that fit their requirements well. The advisor may occasionally need to go in-depth with the investors to explain all the investment limitations they may encounter, such as the difference between the investor's ability to handle risk and willingness to take risk. Before recommending investments, it's critical to explain the risk-return characteristics of each investment product to the customer.
3. Assessing Investors' Appetite for Risk:
Evaluating the clients' or investors' level of risk tolerance is one of the most crucial responsibilities a mutual fund advisor must perform. The advisor may assess the investor's risk tolerance based on their marital status, number of children, income, monthly expenses, dependents, age, loans or EMIs, anticipated future expenses, investment horizon, financial objectives, and other considerations. Depending on their level of risk appetite, various investors are better suited for different assets.
For instance, it would be inappropriate to recommend small-cap equity funds to an investor with a low-risk tolerance due to the minimal necessary horizon. However, investors with a substantial risk appetite may be advised to invest in these funds.
4. Examining different investment possibilities
Although there are many different mutual fund investment options on the market, the advisor only needs to choose the best based on the investor's risk tolerance and financial objectives. Within the asset classes, such as equity and debt, mutual fund schemes are divided into numerous subcategories. The mutual fund advisor must evaluate the appropriate projects for his clients by looking at the performance indicators, comparing the system to its peers, and selecting the best ones.
Due to this, the mutual fund agent must be adequately informed of the financial markets and the economy's overall occurrences.
5. Portfolio Diversification
Diversification is crucial because it lowers total portfolio risk by distributing it across various investments. The advisor advises clients to allocate their funds among different mutual fund plans to reduce the portfolio's volatility.
The advisor conducts a great deal of study to determine the best investment possibilities across asset classes and within the categories that will be combined to build a portfolio. As a result, mutual fund advisors are crucial to portfolio optimization and risk reduction.
6. Keeping Financial Records Up to Date:
Ensuring the client's financial records is one of the mutual fund advisors' key responsibilities. The data might include information like MF Investment transaction details, holding details, income details, PAN card details, and other things that should only be appropriately utilized or shared with the client's permission. Advisers must keep track of all services rendered to clients, including invoices, information about the services supplied, and any other necessary papers.
7. Getting started as a mutual fund advisor:
One must pass the "NISM Series-V-A Mutual Fund Distributors Certification" exam given by NISM to become a mutual fund agent. After completing the test, the candidate must contact AMFI through CAMS-KRA to request an ARN (AMFI Registration Number).