How Mutual Fund Distributor Is Different From an Investment Advisor by netlinehost

 It's difficult to distinguish between the two when it comes to making investment selections because they both help. It also entails selecting MF plans. Both are enrolled entities that are governed by distinct regulatory bodies. Because AMFI owns and controls the Mutual Fund Distributor ( The Association of Mutual Funds in India). SEBI also has authority over Investment Advisors (Securities and Exchange Board of India).

How Mutual Fund Distributor Is Different From an Investment Advisor
How Mutual Fund Distributor Is Different From an Investment Advisor


Before we go any further, let's clarify the differences between mutual fund distributors and investment advisors.


An investment advisor is a person or a group of people who provide financial and investment advice. Even manages securities analysis for a charge, whether through direct client asset administration or written publications. If he has enough assets to be registered with the Securities and Exchange Commission, he is known as a Registered Investment Advisor or RIA. "Financial Advisors" is another term for investment advisors. He/she assesses the investor's assets, liabilities, income, and costs and recommends an investment strategy.


Mutual Fund Distributor - A person or institution who facilitates the purchase and sale of mutual fund units to investors. They are compensated in the form of commissions for bringing in leads (investors) to MF schemes. He or she is expected to understand the investor's circumstances and risk profile in order to provide an investment strategy that meets the investor's needs.


Receiving a commission does not imply that a Mutual Fund distributor is permitted to trade the MF scheme to investors only for the purpose of receiving a commission. Well, the rules are pretty strict in this regard.


Now, let's look at eight characteristics that can help you tell the difference between a Mutual Fund Distributor and an Investment Advisor.


Mode of payment for advice

We all know that mutual fund distributors are members of AMFI and that they are the ones who carry out your investments. The investor instructs the mutual fund distributor to purchase and sell MF plans on their behalf. The MFD receives a commission from the AMC as a result of this. SEBI has instructed AMCs to avoid mis-spelling of MF schemes. Using the trail-only concept, just pay trail commission. Also, no upfront commissions or trail commissions should be given straight or secondhand. Even contests or sponsorships would be considered payment in advance. Rather than receiving commissions from AMC, these investment advisors usually charge a fee. As a result of this shift in the sector, investors are taking notice.


Depositary Obligation

Distributors differ from advisers in that advisors are obligated by depositary responsibility, whereas distributors are not. This means that they are devoted to providing honest advice to investors, whereas distributors are not.


Certification and Examination

Both the mutual fund distributor and investment advisor examinations are distinct. Obtain a valid National Institute of Securities Market Certification for MFD (NISM). Bypassing the NISM Series V-A: Mutual Fund Distributors Certification Examination, they have earned their certification. A person must pass both levels 2 and 3 to become an Investment Advisor.


NISM-Series-X-A: Level 1 Investment Adviser

NISM-Series-X-B: Level 2 Investment Adviser


A certification in financial planning is required by the mutual fund advisor.


Advisers can only give advice, not distribute it.


An MFD has the advantage of being able to advise on the finest MF plans. They can help an investor comprehend the advantages of mutual funds, the different types of MF, and the risk element. They also advise investors on how to invest in mutual funds and suit their needs. After that, they request that the investor invests in mutual funds. They continue to disseminate the mutual fund's plan. Investment consultants can advise on which mutual funds to invest in, but they cannot act as distributors. It is solely their responsibility to provide advice. After that, it is up to the investor, but the distributor ensures that the investor invests in mutual funds.


Differentiation of responsibilities

Apart from that, a mutual fund distributor's primary concern is the distribution of funds. While an MF's job entails a variety of responsibilities, an advisor's job entails a variety of other responsibilities.


  • assisting the investor in making changes to his or her portfolio
  • Record-keeping
  • Funds with a high risk-taking capacity are being evaluated.
  • Selecting the Most Appropriate Investment Option
  • Regular plan vs. Direct plan


Investors will be given a regular plan by a mutual fund distributor and asked to invest in it. However, Investment Advisors recommend that an investor invests in direct plans. There was no other alternative when it came to purchasing MF in the past; it had to be done through distributors. However, in January 2013, SEBI ordered AMCs to start offering mutual fund direct plans. This allows advisers to not only advise but also help investors in investing in direct MF plans. The direct plans feature a lower cost-to-value ratio than the normal plans. While distributors may entice you to regular plans in order to increase their commissions, advisors will not.


Take into account how their level of information collection differs.


The foundation of excellent financial planning is recognising the need to gather general information about your financial profile. As a result, you must ensure that the individual you're entrusting your finances to is willing to ask essential questions. Such as your objectives, income, expenses, long and short-term objectives, assets, obligations, tax status, and so on. Instead of product-based counseling, they must offer need-based plans to help you achieve your financial goals. While MFD is more than likely to address your needs with the things they've been tasked with marketing. A financial advisor is intended to provide you with unbiased advice tailored to your specific needs.


The topic of risk and reward is discussed.

This element is frequently covered in greater depth by the advisor than by the investment advisor. He or she will go over the many risk factors for MF, such as high, low, moderate, and so on. Then he'll check the performance of MF schemes in previous years. After that, you'll be advised to invest in the plan. The investment advisor will ask the distributor to make it easier for the investor to invest in a specific MF plan to satisfy their financial needs. An advisor is more interested in determining your risk tolerance. Setting the right expectations in terms of returns on investment is also important.


Conclusion

It's impossible to say whether or not a mutual fund distributor or adviser is required. Both are valuable resources for finding the right mutual fund investment. All persons, including companies, who obtain an AMFI certification number (ARN) are mutual fund distributors, according to MF regulations, from the largest to the smallest. In addition to distributing the MF schemes of various AMCs, they require guidance in a variety of areas, including scheme selection, asset allocation, tax planning, and so on, all of which fall under the ambit of MF schemes. So it's entirely up to the investor whether he wants to contact a distributor directly or seek mutual fund counsel.



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