Role of Advisors/Distributors in Mutual Fund Industry

Advisors/Mutual Fund Distributors have always played a vital role in making clients invest money in Mutual Fund schemes rather than putting all their surplus money in fixed income instruments, gold and real estate. Initially, investors lacked knowledge about options available in Mutual Fund Industry in the form of Equity, Debt, Hybrid, Sector Funds and Liquid Funds etc. Distributors have added number of clients and AUM to Mutual Fund Industry by playing an important role in advising clients to grow their wealth by investing in various schemes of Mutual Funds as per their time horizon of financial goals and risk appetite.

Distributors drive mutual fund SIP story:

The latest AMFI data shows that of the total Rs.8,055 crore SIP contribution received in March 2019, 88% or Rs.7,082 crore came through distributors. This shows that distributors have played a key role in promoting SIPs among investors.

The trend is similar if we analyse the number of SIP accounts. Of the 2.62 crore SIP accounts in the industry, 89% that is 2.33 crore SIP accounts were activated under a regular plan(through distributor). Similarly, regular plan SIP AUM stands at Rs.2.4 lakh crore which is 90% of the industry’s SIP AUM.

National distributors like Bajaj Capital, India Infoline, Motilal Oswal and Individual Financial Advisors have contributed in educating clients about the benefits of investing via the SIP route through various initiatives like Investor Awareness Programs, social media and personal meetings. Their efforts have made SIP the basis in an investor’s portfolio.

With the great efforts of distributors, many first-time investors have entered the equity markets in the last 3-4 years. They have played a crucial role in guiding these investors to invest in equities with a long-term view of over 5-6 years. However, equities being a volatile product they have helped clients manage the volatility through SIPs as they get benefit of Rupee Cost Averaging and Power of Compounding.

The crucial role of distributors in growing the industry

Indian mutual fund industry has grown a lot in last 10 years. From Rs.5.41 lakh crore as on July 31, 2008, the industry has grown to 25 lakh crore as on May, 2019. Distributors have played a major role in this. Almost all Mutual Funds, who were earlier dependent on National Level Distributors and IFA’s for investment in various schemes have started direct channel of sale where their employees directly interact with individuals and companies to invest in schemes.

Most of the times, investors do not have the requisite knowledge to be able to take right investment decisions independently. This is where the role of distributor is important. He also helps prospective investors understand how these investments in Mutual Funds can take care of their overall financial plan.

They help them to invest in Equity Schemes if time horizon is long term, in Balanced schemes if time horizon is medium term and Debt schemes if time horizon is short term. They also get their money invested in Sector funds if investor can take more risk and withstand short term volatility. There are Index funds if investor is passive.
What is the way forward for the distributor community?

There are technology based investments like online portals available where investment is direct and no distributor is required. The expense ratio is also less in case of direct channels, but only a tech savvy investor can adopt this route. However, it lacks human interaction and does not handhold customers in times of market downturn. Robo advisors are also available which give advice and investors invest through direct plans. For guidance and handholding of investors, the mutual fund intermediation community has a tremendous role to play in developing the investment culture in India.

Madhu Sinha
Campus Director
ICoFP, Mumbai

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