Mutual Fund: Online or physical, with or without advisor – various ways of MF investments

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Published: March 1, 2020 8:42 PM

Financial goals and investment needs of every person are unique and can't be generalised and recommended through media campaign.

mutual fund, MF, mutual fund sahi hai, mutual funds are subject to market risks, SEBI, AMFI, financial planning, investment advisor, registered financial adviso, direct plan, regular plan, online investment, AMCs, RTAsThe advancement of technology has made it very easy for investors to invest in MF schemes online as per their financial requirement.

While the statutory warning – “Mutual Fund investments are subject to market risks” – makes risk-averse investors worried, the Association of Mutual Funds in India (AMFI) is running the ‘Mutual Fund Sahi Hai’ campaign to popularise mutual funds (MFs) by educating people about the various categories of MFs and encouraging people to invest directly in MFs.

However, financial goals and investment needs of every person are unique and can’t be generalised and recommended through media campaign. So, it is very important for investors to make a proper financial plan to determine if MFs would suit their investment objective, and if yes, how much to invest in which categories of funds and for how long.

The advancement of technology has made it very easy for investors to invest in MF schemes online as per their financial requirement.

Online investments may be done in direct and regular options through the websites of Asset Management Companies (AMCs), investment intermediaries and on stock exchange platforms.

While, KYC-complied investors may just log in and start investing, new investors, however, need to register their KYC (Know Your Customer) first – either online through Aadhaar / video KYC or offline – before start investing.

Investments may be made offline in both direct and regular plans by submitting forms to AMC offices or the offices of their Register and Transfer Agents (RTAs) or in regular plans through MF brokers or distributors.

Taking help of a financial advisor would depend on your competence of understanding financial matters and capability of making financial plan and making investments and monitoring the same as well as managing emotions during market turmoil in case of equity investments. If you have time, competence and confidence, you may go all alone, otherwise it will be better to take help of an advisor, if you have capacity to pay to hire one.

In case you can neither manage your investments nor have capacity to pay financial advisory fee, better to invest through an experienced MF distributor.

But can you and/or should you take advice as well as invest in MF through a investment advisor?

If you hire an advisor, it would be better to invest in direct plans as per the advice given, as there is no point of getting a commissioned product even after paying advisory fees.

But can a Registered Investment Advisor (RIA) push regular plans to his/her clients? Ideally no, as market regulator SEBI disallows this to prevent conflict of interest.

But in practice, is it possible to prevent an advisor from selling regular plan through close relative like his/her spouse?

“Husband and wife can be in two different roles. SEBI’s latest consultation paper on MF adviser guidelines reveal that a SEBI-RIA cannot offer Mutual Fund distribution services and a distributor cannot offer investment advisory services. If the husband chooses to be a mutual fund distributor, wife can be an RIA,” said Ankit Agarwal, MD Alankit Ltd.

“Now, SEBI would permit investment advisors to provide advisory along with distribution services within the same outfit. The regulator has been working on the demarcation between advisory and distribution of financial products, ever since SEBI first issued the investment advisory guidelines. Individuals willing to get registered as investment advisers shall not furnish distribution services through any of their immediate family members,” said Agarwal.

When asked if it means that there is no restriction on family members of RIA to become a MF distributor, Agarwal said, “Replying to the 3rd consultation paper floated by SEBI, Association of Mutual Funds in India has suggested that RIAs registered with SEBI must be allowed to offer execution services through their family member or by floating a separate arm to their clients. Therefore, there is no restriction on family members of RIA to become a MF distributor but they will deliver only execution services.”

Whatever may be the opinion on allowing RIAs push regular plans, it would be wise to invest in direct plans, if paid service of advisor is taken.

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