Mutual Fund Distributors: Playing A Key Role In Mutual Fund Distribution

• April 11,2023

The mutual fund industry in India has experienced substantial growth, with assets under management (AUM) increasing 38 times over the past two decades. Despite this, mutual fund penetration remains low compared to global standards, highlighting the crucial role of mutual fund distributors in expanding investor reach and promoting financial literacy. These distributors not only educate and guide investors based on their financial goals and risk profiles but also provide valuable handholding during market volatility, encouraging rational investment decisions. They play a vital role in servicing investors, managing portfolios, and ensuring consistent communication and support. As India’s mutual fund industry continues to grow, mutual fund distributors will remain key catalysts in driving financial inclusion and wealth-building for investors across the country.

Original article by Misbah Baxamusa, published on April 5, 2023, in Good Returns.

Original article by Misbah Baxamusa, published on April 5, 2023, in The Times of India.
The mutual fund industry has seen unprecedented growth in the last 2 decades. In the last 20 years, the AUM of the mutual fund industry has grown from Rs 1.04 lakh crore to Rs 40.8 lakh crore (AMFI, January 2023), a whopping 38 times growth! This growth can be attributed to the growing awareness and increasing income amongst the population of India. However, a major role is played by the mutual fund distributors who are at the heart of this industry.

The total number of ARN holders, that is the mutual fund distributors in India, registered with the industry body 'Association of Mutual Funds in India' (AMFI) stands at around 1.32 lakh and the number of investors is estimated to be 3.7 crores with 14.28 crore folios (AMFI, January 2023). The folio count of investors has been increasing at an impressive pace in recent years. Relatively speaking, the mutual fund penetration in India is very low when compared to the developed markets. It is only now that it is gaining momentum and popularity thanks to the growing financial literacy amongst investors and the efforts of the entire industry, especially the mutual fund distributors. The growth momentum is expected to continue for at least the next couple of decades.

The mutual fund distributors have been a catalyst in reaching out to investors and spreading financial awareness and access to mutual funds across India. The task of a mutual fund distributor is to guide the investors by understanding their risk profile and financial needs and then recommending suitable mutual fund products. More importantly, mutual fund distributors can handhold the investors during the ups and downs of the market and guide them in overcoming their emotional and personal biases.

With mutual fund distributors guiding the investors, they are more likely to act rationally during volatile markets and to stay invested for longer periods of time. By educating the investors and making investments more accessible to them, the mutual fund distributors have contributed significantly to both, the growth & prosperity of the investors and that of the mutual fund industry.

Here are key reasons why mutual fund distributors act as catalysts for the growth of the mutual fund industry:

Increasing Investor Base: Mutual fund distributors continue to play a very important role in educating and spreading mutual fund awareness across India. They continue to bring a lot of new investors to the industry while also commanding a significant share in terms of the total assets managed in spite of the introduction of direct plans. As per media reports, a significant portion of the assets managed of Retail and HNI investors continues to be in the regular plans through mutual fund distributors. This is even more prominent when you see the contribution from beyond top cities. While mutual fund investing has been easier than ever, investors still need that extra nudge and a trustworthy person who can influence and motivate them to invest.

Investment Guidance: Mutual fund distributors tailor investment guidance based on the unique needs and risk profile of their clients. Mutual fund distributors would recommend 'suitable' products that match investor needs and risk appetite. They can also help you manage an ideal asset allocation and portfolio of mutual funds and conduct regular reviews to keep your portfolio optimised as per plans. With proper guidance and focus on end goals, it is likely that the investor would stay invested for longer periods of time and not get swayed by market movements. The investment guidance plays an important role in the mutual fund performance and ultimately, the success of the investors, building strong trust in mutual funds as a product. 

Handholding Investors: As an industry, investor behaviour is of concern especially when we see irrational market behaviour during volatile market cycles. However, a mutual fund distributor can handhold the investor during such times resulting in rational investor behaviour. One of the most important roles of mutual fund distributors is guiding investor behaviour and making sure that one is not influenced by the emotions of greed or fear in the markets. The mutual fund distributor would also motivate investors to invest more, be consistent in investing, have stable, long-term investments, reduce redemptions, and benefit from sharp market movements. All this would directly impact wealth building by investors. Though unmeasurable, this should count as one of the key impacts in industry growth that mutual fund distributors can have.

Investor Servicing: The mutual fund investors would be the go-to person for any servicing, query, complaint, or for processing any non-financial request of the investor. Sending regular updates, portfolio insights, and reports is the generic role of a mutual fund distributor. They are also expected to stay updated with the regulatory requirements expected from the investors. For an average investor, to do all this by oneself can be a bit daunting and a helping hand can give them a lot of comfort. 

Going forward: The mutual fund penetration in India still remains low compared to global standards. Despite the exponential growth curve in recent years, our AUM to GDP ratio is significantly low at around 16-17% as compared to a global average of around 75%. Compare this to that of the US, France, and the UK at 140%, 80%, and 67% respectively (AMFI & World Bank, 2021), we can understand that we have a long way to go. Factor in the size, diversity and nature of the Indian market compared to the developed markets and one can easily realise the importance of mutual fund distributors in the financialisation of the masses at the macro level. At the micro level, with the kind of role and impact a mutual fund distributor can have on the wealth-building journey of the investor, it surely makes the perfect win-win story for everyone interested.

(About the author: Misbah Baxamusa, CEO, of NJ Wealth Financial Products Distributors Network)

Original Source:  https://www.goodreturns.in/classroom/mutual-fund-distributors-playing-a-key-role-in-mutual-fund-distribution-1280588.html