Today’s world is highly dynamic, interconnected, and tech-savvy and is changing at a very high pace from time to time.
Given the abundance of information available online consumers can now make crucial decisions such as what electronic product is most suitable for them just by reading features online. However, can the same practice be followed when it comes to investing as well?
The ultimate aim of investing is to satisfy needs and accumulate wealth in a manner that ensures peace of mind. Generally, investors are perplexed by numerous questions and doubts in their minds such as laying out the sum required to fulfil their financial needs and the required asset allocation to fulfil each of these unique needs. Additionally, the number of investment avenues available confuses investors.
With the help of the internet, investors can self-educate themselves regarding diversification, risk profiling, and asset allocation, however, it would still be very difficult for them to compare different investment options and choose the one most suitable for them.
To give you a perspective, in India, there are nearly 43 asset management companies that have devised different types of mutual funds falling into different categories. It is difficult for an investor to understand which mutual fund scheme is best suitable for them. A mutual fund distributor is the perfect person who can help you in this situation. A mutual fund distributor's job is to comprehend an investor's needs, evaluate their risk tolerance, and provide recommendations based on these factors about mutual fund investments. They are the essential intermediary between the investors and the asset management company, offering benefits to both.
Distributors also regularly update investors on the performance of their mutual fund portfolio and assist clients in making wise mutual fund investment choices that will fulfil their needs. Additionally, they guide investors through the complexity of the financial industry.
In times of market instability, investors need someone to handhold them and walk beside them. Mainstream finance theories are based on the assumption that investors are rational and don't let their emotions influence their choices of investments. However, studies have time and again proved this wrong. Distributors of mutual funds may guide investors in the proper direction and aid them in overcoming these behavioural biases.
Let's delve deep and gain insights into the part mutual fund distributors play in helping their clients build wealth:
Risk profiling: A mutual fund distributor may assist a customer in determining their risk tolerance and capacity while selecting products that optimise their risk. Depending on their age and income, a mutual fund distributor might recommend to their clients how much risk they should ideally tolerate. Additionally, they may assist their clients in diversifying their risk, which will maximise their earnings and shield them from losses.
Need-based investing: Mutual fund distributors assist clients in analysing their needs and selecting the best course of action for their mutual fund investments. All investors have unique needs and risk profiles, and the task of the mutual fund distributor is to tailor their recommendations based on their clients’ profiles. These needs may include everything from long-term wealth building to short-term cash flow management. Distributors can create a roadmap for how to prioritise and meet their requirements with mutual funds after they have identified what they are.
Behavioural biases: Investors may be driven by their emotions and may let behavioural biases affect their decision in their wealth-building journey, particularly during erratic market moves. Investors may become greedy when markets are rising and make additional investments at a premium price. Conversely, when markets are falling, investors may become afraid and book losses. A mutual fund distributor offers investors support during these periods and reminds them that the best way to meet their financial needs is by taking advantage of volatility and avoiding irrational choices. Additionally, investors are less likely to make blunders if someone is always present to lead and support them.
Post-investment servicing: After a customer makes an investment, the mutual fund distributor's job is to maintain tabs on their demands and check their portfolio on a regular basis. Mutual fund distributors can assist investors in rebalancing their asset allocation to meet their financial needs by conducting routine monitoring and evaluations. Distributors also offer reports and analyses on a regular basis to help investors monitor their assets.
Skill and knowledge: As qualified persons, mutual fund distributors are expected to possess a proper understanding of mutual fund products. They would be well acquainted with determining appropriate asset allocation and would make recommendations for the same depending on your needs and risk tolerance, taking into account anything from fund classifications to investor behavioural biases. Furthermore, they base their recommendations on this information so that investors can make informed decisions.
Query Solving: Mutual fund distributors handle all operational & regulatory issues relating to mutual fund investments. Distributors can help investors make transactions and handle non-financial requests or any queries/grievances relating to the same. They also help investors keep up with the compliance requirements from time to time. This makes the entire mutual fund investment journey easy, convenient, and hassle-free for investors.
Summing up, mutual fund distributors play a vital role in helping investors fulfil their financial needs. They positively influence their clients so that they can avoid their behavioural biases, save more and stay invested for a longer period of time. A lot of these things have an impact on the wealth-building journey which cannot be quantified in just plain numbers.
