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Mutual funds aim to generate profits by investing in various financial products, including equities, debt securities, and money market instruments. Investors often lack the knowledge or time for market research, making mutual fund advisory crucial. These advisors assist investors in achieving financial objectives by offering personalised advice tailored to factors like investment horizons and risk tolerance. Compensation for mutual fund advisors may come directly from fund houses or through distributors. Now, let’s explore how to become a mutual fund advisor after a brief overview of their role.
Table of Contents
Defining a Mutual Fund Advisor
A mutual fund advisor is a qualified individual or business that provides financial advice to investors regarding mutual funds. They are licensed individuals knowing how to analyse different mutual fund schemes. Using this expertise, they recommend funds to investors for investment.
These professionals take into account a variety of variables while compiling a list of mutual funds. The investors can pick from this list to build a portfolio. These include an individual’s investment horizon, risk tolerance, and financial aspirations.
Mutual fund advisors can help investors build a portfolio of mutual fund schemes that are in line with their financial objectives. This requires the advisor to track a variety of mutual fund schemes with various investment goals. One should also be aware of significant financial market events that could have an influence.
Role of a Mutual Fund Advisor
The role of a mutual fund investment advisor encompasses the following:
- Understanding Investor Needs: It’s critical that mutual funds advisors try to comprehend the objectives of their clients as well as the timeline for achieving them. Their recommendations will be based on the goals the client has. These may include paying for higher education costs, building wealth in the long run, or saving for retirement.
- Educating Clients: The second responsibility of a mutual funds advisor is to inform their customers about the available options, especially those that are best suited to their objectives. Advisors may occasionally need to inform clients of any potential investing limitations.
- Evaluating Risk Tolerance: Investors’ risk tolerance should be assessed by their mutual fund advisors because some investors may not be aware of it. As a result, mutual fund advisors are essential in helping clients recognise their risk tolerance.
- Analysing Investment Alternatives: One of the responsibilities of mutual fund advisers is to evaluate the range of investment alternatives and deliver carefully selected options to clients. They evaluate the performance indicators of mutual funds. Based on the results, they compare plans to determine which are most appropriate for their client’s objectives.
- Portfolio Diversification: For the majority of their clients, mutual fund investment advisors tend to focus on portfolio diversity. The likelihood of excessive volatility and risk gets eliminated when one invests in diverse assets. In order to minimise risk, the advisor optimises the portfolio of his clients.
Criteria to Become a Mutual Fund Advisor
- Education: A minimum requirement is completion of Class 12, or alternatively, a three-year diploma after Class 10.
- Age: Candidates must be at least 18 years old to become a mutual fund agent; however, there is no defined maximum age.
- Advantageous Education: Success in the mutual fund industry is more likely with a background in economics, financial markets, or investment analysis.
How to Become a Mutual Fund Advisor
Step 1: Apply for the NISM Exam
By visiting the National Institute of Securities Markets (NISM) official website, the candidate must register for the NISM Series V-A Mutual Fund Distributors Certification Examination. The exam is offered at NISM centres. The registration cost is ₹1,500 (excluding GST).
The candidate can download the PDF file for exam preparation after completing the payment and, if the registration is successful, can also buy hard copies of the study materials from nearby bookstores or online retailers. Professionals having over ten years of experience in the distribution or sale of mutual funds are eligible to obtain a NISM Mutual Fund Distribution Certification through one of the following methods:
- Take the NISM Series V-A Mutual Fund Distributors Certification Examination.
- Finish the CPE (Continuing Professional Education) Training Programme offered by the NISM.
An exam takes place after a six-hour classroom instruction module that makes up the CPE training programme. The program’s registration fee is ₹2,500. Applicants can submit their applications online through the NISM website.
Step 2: Pass the NISM Mutual Fund Distributor Exam
Next, candidates must pass the test. Just after the test is over, the results are displayed on the screen. The candidates will find the certificates in digital form on the NISM website. In addition, a physical copy will be sent to the address they provide within 30 business days. After completing the Series-V exam, the certificate remains valid for three years. The CPE program has a three-year validity period.
Step 3: Know Your Distributor
After passing the test, the candidate must go through a Know Your Distributor (KYD) process. The Association of Mutual Funds in India (AMFI) adopted the KYD procedure on 1 September 2010. This was an effort to examine the current mutual fund financial advisor registration process and take steps to strengthen it. Additionally, this procedure would enable an in-person verification of ARN holders and help assure the accuracy of the information provided in the registration application.
When an individual applies to the Association of Mutual Funds in India (AMFI) for an AMFI Registration Number (ARN), one goes through this process. It is a mandatory step to start offering advisory services for mutual fund schemes. In the application form for ARN, the candidates will have to enter their PAN, NISM Distribution certificate number, personal details, and other information.
Verification of documents and a biometric process make up the KYD process. Therefore, the financial advisor must submit an ARN registration application and a KYD application at the same time. AMFI hires Computer Age Management Services Ltd. (CAMS) to handle the KYD process through its ‘CAMS POS’ facilities.
According to the specifications, all properly completed forms must be filed through CAMS-KRA (KYC Registration Agency) either physically in a CAMS office or online. The candidate (now a mutual fund agent) then receives an ARN number once the paperwork is satisfactorily confirmed. After that, their card is sent to the address listed on their application within a few days.
Step 4: Sign Up With Distributors or AMCs
The mutual fund agent is a full-fledged advisor once they have their ARN number. They can now offer mutual fund advisory services to customers. The next stage is to make a contract with distributors of AMFI to sell these funds. Distributors are required to pay a commission based on how many mutual fund schemes the advisor sells. The advisor also has the choice to enter into contracts directly with fund houses or AMCs (Asset Management Companies). Financial houses like Share India offer a good platform for individuals to partner with them as mutual funds advisors. It has competitive commission rates that are quite beneficial to aspiring MF advisors.
Conclusion
Mutual fund advisors do a variety of work to provide the best mutual fund suggestions to investors. They closely monitor several funds, evaluate the financial goals of their clients, and manage their portfolios. Becoming a mutual funds investment advisor is a respectable career choice. One needs to clear the NISM exam to become a mutual funds advisor. Then, he can partner with a distributor or AMC to start offering his services.