A Comprehensive Guide to Achieving Success as a Mutual Fund Distributor

Guide for a Successful MFD Business

Mutual funds have emerged as a popular investment vehicle in the modern era. The assets under management (AUM) of the industry grew from 1.13 lakh crore in October 2003 to 46.72 lakh crore in October 2023. This growth is fueled by campaigns such as “Mutual funds sahi hai” and the strong regulatory framework provided by SEBI. However, mutual fund distributors lie at the heart of this industry. 

Despite this growth, the number of mutual fund distributors lies at just 1.46 lakh as of October 2023, meaning only 1 distributor per 10,000 people in India, a vast and diverse country. Moreover, India’s AUM to GDP ratio is a mere 17%, in contrast to the world average of 75% (AMFI & World Bank, 2021). These statistics present an underlying business opportunity as a mutual fund distributor

3 key benefits of mutual fund distribution business

  1. Sense of ownership- Pursuing mutual fund distribution is more like a business than a job. A distributor can set his own targets, hence allowing them to work at their own convenience and pace. Distributors have the freedom to expand their business based on their free will, calibre, and passion rather than having to follow any kind of order. 

  2. Commission-based income- Mutual fund distributors make a living through a unique commission-based model called trail income. Trail commissions are calculated based on investors’ market value of investments, which they earn on a monthly basis. Hence, the longer the investor stays invested, not only does the portfolio value of investors increase, but the distributor’s income also increases exponentially.

  3. Satisfaction- Mutual fund distribution offers both financial and personal fulfilment. Distributors aid investors in fulfilling their financial needs and making them financially independent. They handhold investors throughout their mutual fund investment journey and help them realise the full potential of their invested money. This not only satiates the financial needs of the investors and distributors but also gives them personal satisfaction. 

Mutual fund distributors are the intermediaries between asset management companies and investors who facilitate the buying and selling of mutual funds and leverage their guidance to investors to make informed investment decisions. Mutual fund distributors are expected to have sound knowledge about the industry and spread awareness amongst the masses. 

MFD’s contribution to investor success

  1. Analysing risk profile- A distributor can analyse an individual's risk appetite and risk tolerance based on factors such as age, income, number of dependents, etc., on the basis of which they can prepare their risk profile. Through this procedure, they can guide investors on optimal asset allocation and diversifying risks, thereby enhancing potential returns and safeguarding against potential losses.

  2. Handholding to overcome behavioural biases- Generally, investors are not rational and make decisions based on their fear, greed, and anxiety. Due to such behavioural biases, investors might make impulsive decisions and exit markets by booking losses or sub-optimal returns. In such a scenario of market volatility, a distributor can guide the investor to stay invested in mutual funds and be on track to fulfil long-term needs.

  3. Need-based investing- Distributors help investors assess and quantify their needs and build a tailored investment approach to cater to their specific needs. While certain needs, such as retirement, may be common among investors, they are bound to have unique needs and dreams. These needs can encompass a broad spectrum, ranging from long-term wealth accumulation objectives to short-term management of surplus funds. By identifying and prioritising these needs, distributors can develop a comprehensive roadmap to meet investors' requirements through investment in mutual funds.

  4. Customer Servicing- Mutual fund distributors are responsible for executing all operational tasks related to the purchase, switch and redemption of mutual funds. Moreover, distributors are expected to stay updated with the regulatory framework and leverage that information to ensure investors stay compliant at all times. Acting as intermediaries between asset management companies and investors, distributors serve as the primary point of contact for all investor inquiries relating to mutual fund investments.

  5. Portfolio reviews and rebalancing- The process of investing doesn’t end after quantifying investment needs, analysing risk profile, determining the asset allocation, setting a time horizon, determining the investment amount to fulfil the need, and choosing the right mutual fund. However, after this is done, investors need to set a diligent process to review their portfolio to ensure they are on track to fulfil their needs. A distributor can guide them on whether to rebalance their mutual fund portfolio or remain invested in order to fulfil all their needs efficiently.

  6. Research and knowledge - Distributors are certified individuals with extensive knowledge of mutual fund products. Their skill lies in identifying appropriate fund categories and providing tailored recommendations based on investors' specific requirements and risk profiles. They leverage their knowledge not only of fund categories but also of investors' behavioural biases to guide them in making well-informed investment choices. 

Mutual fund distributors play a crucial role in the wealth-building journey and hence are expected to follow high standards of ethics in their business. Distributors always need to put the needs of the investors before their own lucrative benefits. Let's look at a few tips on how mutual fund distributors can ethically establish a successful business. 

7 steps to establish a successful mutual fund distribution business

  1. Set a target- Like in any other business, setting targets and channelling efforts in that direction is an efficient way to succeed. Targets act as a key performance indicator, thereby offering more clarity in measuring and monitoring the performance of oneself. In case of any deviations from the target, distributors can analyse the reason for it and strategise on how to deal with the situation accordingly. As a result of these targets, distributors can achieve the ultimate goal of enhancing investor engagement and literacy in mutual funds and fulfilling the long-term financial needs of investors through disciplined and informed investing.

  2. Networking- It is important for distributors to build a strong network to leverage it to acquire potential investors. By participating in webinars, online seminars, and discussion forums, distributors can stay updated with the industry's newest trends and practices. Building connections and engaging in such events can help mutual fund distributors generate potential leads.

  3. Promote SIPs- SIPs are a win-win for both investors and mutual fund distributors. A mutual fund distributor’s earning is determined by the profit they generate for the investors. Hence, promoting SIPs can help in building wealth for both investors and distributors in the long term. SIPs can be a valuable asset for distributors seeking consistent growth and client retention. By promoting SIPs, distributors can attract new investors, particularly those who are hesitant about lump-sum investments. Emphasising regular investing through SIPs can foster long-term relationships with clients, leading to a steady flow of commissions.

  4. Use of technology- Investors leveraging technology have witnessed improved customer experiences, increased engagement, and substantial growth within the mutual fund industry. As technology advances, distributors must stay updated with the latest trends and innovations to remain competitive and deliver an optimal investment experience to investors.

  5. Ongoing training and knowledge- Mutual fund distributors should prioritise continuous learning and enhancing their expertise in the field. Subscribing to industry publications provides valuable insights and keeps them well-informed about the latest news and developments in the industry.

  6. Patience- Achieving success as a mutual fund distributor in India demands dedication and patience. Immediate results should not be expected, as building a prosperous career in this field takes time. Remain persistent and focused on your efforts, understanding that it may take several years to establish a solid client base and gain recognition in the industry. Be prepared to invest the necessary time and hard work to reach your goals.

  7. Ethics- The task of a mutual fund distributor is to build wealth for their clients. Their clients put trust in them when they invest their hard-earned money. For some, it could be their entire life savings. Hence, it is very important for a distributor to be ethical and put the needs of their clients before their own needs. 

Following all these rules can be a bit daunting, and being a distributor on your own would require great effort in client acquisition. Hence, it can be beneficial to connect with a mutual fund distribution network or platform, like the one provided by NJ Wealth. At NJ Wealth, distributors get 360-degree support in terms of research, marketing, sales, training, technology solutions, and customer care so that the distributor can completely focus on client acquisition.