What's the role of mutual fund distributors in wealth building journey for investors?

Investments are done with one simple purpose, which is to fulfil needs and build wealth in a way that investors have peace of mind. This peace of mind, however, comes at a cost. 

There are a lot of questions such as figuring out the right amount to invest and choosing the right asset class. Moreover, investors have numerous options to invest hard-earned money. Due to these options available to the investors, there is confusion in selecting the right product to fulfil needs and generate wealth.

Today's world is highly interconnected, with the plethora of information being disseminated; people can now make decisions such as what phone or laptop to buy just by reading features online. However, there are some things that cannot be replaced. When it comes to investing, taking decisions on your own can sometimes be detrimental.

There are around 43 mutual fund houses in India and hundreds of mutual fund schemes lying in different categories to choose from. Even with knowledge of asset allocation, diversification, and risk profile, it is difficult for investors to research all the schemes and choose the best one that is perfectly suitable for them. This is where a mutual fund distributor steps in. 

The task of a mutual fund distributor is to understand the needs of the investor, analyse their risk profile and give the right guidance to the investors when it comes to mutual fund investments. They act as a bridge between the investor and the mutual fund house, providing valuable guidance and recommendations on investment decisions. A mutual fund distributor facilitates the buying and selling of mutual funds for their clients. With time, one can easily realise that a Mutual fund distributor plays a vital role in the wealth-building journey of investors.

In addition, they offer personalized support to investors, helping them navigate the complexities of the investment world and providing on-going guidance as needed.

Investors need someone to handhold them and walk with them through their path in times of market turbulence. Mainstream theories of finance assume that investors are rational and they don’t let their emotions play a part in their investment decisions. However, time and again, studies have contradicted this assumption. Mutual fund distributors can assist investors on the right path and help them fight these behavioural biases.

Let's look at the role which mutual fund distributors can play in the journey of wealth-building for their clients:

Assessing risk profile: A mutual fund distributor can help the client to understand their risk capacity and risk tolerance and help choose products where their risk is optimised. A mutual fund distributor can suggest to their clients how much risk they can take depending on their age and income. Moreover, they can help their customers diversify their risk, hence optimising their returns and protecting them from potential losses.

Need-based investment: Mutual fund distributors help investors analyse their needs and define the correct investment path based on their needs. While some needs are common for most investors, there might be varying needs for investors which can be tailored by the mutual fund distributors. Such needs can range from long-term accumulation of wealth to temporary management of surplus cash. With the needs in place, distributors can make a plan on how to priortise and fulfill their needs with mutual funds.

Emotional biases: Investors in general may act based on their emotions, especially during extreme market movements. When the markets are going high, they may become greedy and invest more by paying a premium while when the markets are low, investors become fearful and hence book losses. A mutual fund distributor can handhold investors during such times and remind them that the right way to fulfill financial needs is by benefitting from volatility and avoiding irrational decisions. Also, with someone always there to guide and handhold you, you are less likely to make costly mistakes.

Regular monitoring and reviews: Once an investment is made by the client, the task of the mutual fund distributor is to regularly monitor the portfolio and keep a track of their needs. He is the person you trust to be looking after your mutual fund portfolio, even when you are not, making sure you make the most of opportunities that the markets throw at you. 

With regular monitoring and reviews, mutual fund distributors can guide investors in rebalancing their asset allocation in order to achieve their financial objectives. Distributors also provide periodic reports and insights to assist investors to keep track of their investments.

Knowledge and research: Mutual fund distributors are certified individuals and are expected to have in-depth knowledge of the ins and outs of mutual fund products. They would be good at identifying suitable fund categories and would recommend funds based on your needs and risk profile, ranging from the fund categories to behavioural biases of investors. They can use this knowledge to help investors make informed decisions and guide them in choosing the right mutual fund portfolios that align with their financial needs.

Handling queries and concerns: Mutual fund distributors are there to take care of all the operational and compliance matters pertaining to mutual fund investments. He is the first person an investor will call up in case of any query or complaint with respect to any transaction, holdings, or non-financial requests. Having someone to assist you only makes things more convenient and hassle-free.

To summarise, a good mutual fund distributor can play a transformative role in the overall financial success of investors. They can impact better decision-making and optimal management of mutual fund investments. They can also contribute by motivating and pushing you to save more and stay invested longer, thereby helping immensely in the long-term wealth building journey. 

With time, when a mutual fund distributor performs the role that he is expected to, it translates into financial well-being and peace of mind, things that cannot be quantified in numbers.

(The author of this article is CEO, NJ Wealth Financial Products Distributors Network)