The mutual fund industry has witnessed phenomenal growth over the past 10 years, growing from Rs 8.90 lakh crore on 30th November 2013 to Rs 49.05 lakh crore on 30th November 2023 (Source - AMFI). With this growth of the industry, the number of investors is also growing, and with that, the need to service the investors is also growing. This is where a mutual fund distributor comes in.
Mutual fund distributors are the bridge between an asset management company and investors. The task of a mutual fund distributor is to facilitate the buying and selling of mutual funds by leveraging their knowledge and guidance. Moreover, they need to understand an investor’s unique needs and their risk profile, based on which they can provide tailored guidance to the investors.
Mutual fund distributors are crucial because the investors trust them with their hard-earned money. A distributor thus needs to follow high standards of ethics, comply with all government regulations, and promote transparency by making all the necessary disclosures.
7 Keys to Establishing a Successful Mutual Fund Distribution Business
- Ethics - It is the fundamental responsibility of a mutual fund distributor to follow high standards of ethics in terms of transparency and integrity. Since mutual fund distributors deal with investors' hard-earned money, it is important that distributors do not disclose any confidential information. MFDs must ensure that their guidance is based on investors’ best interests and not personal financial incentives.
- Setting business targets - To be successful in any venture, it is important to set a target that is specific, realistic, achievable, measurable, and time-bound. Targets act as key performance indicators against which progress can be monitored and tracked. If there are any deviations from the target, a distributor can take corrective action.
- Spreading financial literacy - The population of India stands at 143.50 crore (Source - Worldometer), out of which the number of unique mutual fund investors is just slightly over 4 crore in September 2023 (Source - Business Standard). A huge reason for the low number of mutual fund investors in India is the low financial literacy rate of around 27% (Source - Asian Development Bank). A mutual fund distributor must actively participate in educating investors through different modes, such as seminars, meetings, video conferences, etc, in order to promote rational decision-making.
- Investor Relationship - A mutual fund distribution business is highly dependent on trust. To get investors to invest their hard-earned money, distributors need to build a trustworthy relationship with clients and conviction for the product in the minds of investors. For distributors to become successful, it is important for them to cultivate trust in the minds of investors.
- Promote SIPs (Systematic investment plans)- SIPs are not only beneficial for investors but also highly beneficial for distributors. A mutual fund distributor’s earnings are directly proportional to the returns they generate for their investors. Hence, SIPs are a win-win for both investors and distributors.
- Patience - Establishing a successful mutual fund distribution practice is a process that takes time and persistence. The journey to building a trustworthy clientele may take several years. Hence, it is important to not expect instant results and to invest the time and energy coupled with dedicated hard work to become a successful mutual fund distributor.
- Training and knowledge - A mutual fund distributor must stay updated with the latest trends and changes in the industry. In order to guide investors efficiently, it is important that a distributor is aware of the subject matter in question. Distributors can do this by attending seminars, training, reading industry publications, etc.
To establish a successful distribution practice, following these steps is of utmost importance; however, being an ethical individual with integrity, honesty, and transparency is also important to cultivate trust and long-term relationships. Building a reputation as an ethical distributor fosters a culture of accountability and reliability. Focusing on clients' well-being, fulfilling their long-term financial needs, and helping them build wealth is a wholesome and satisfying business where you can not only contribute to your investors’ growth, but you can grow along with them.
