Who is the right person to advise you on mutual funds?

Who is the right person to advise you on mutual funds?
Who is the right person to advise you on mutual funds?

Who is the right person to advise you on mutual funds?

If you want to invest in mutual funds, it's likely that you will talk to your friend, or a banker or people advertising themselves as financial advisors.

But have you ever questioned their motives? Why is the banker or advisor recommending a particular fund? Is it suitable for you? Can you afford to take that risk? Is the advisor asking for a fee to give you unbiased advice or is giving it free because he is getting a commission on sales from a mutual fund company?

Here's how you can decide whom to choose.

The first and most important factor is to ensure that the advisor at least has the AMFI certification (Association of Mutual Funds in India). The Association ensures a certain level of knowledge of funds and has guidelines on the behaviour of the members. 

Make sure the advisor is transparent and willing to understand your needs and is not focussing on how much money he/she can make off you. 

Does the advisor assure you a particular return, even informally? Mutual fund returns are linked to the market and so there can be no guaranteed returns. That's a warning bell for you. 

Many investors are emotional and react immediately to market news. Does your advisor empower you with adequate information during times of volatility? 

Does your advisor often suggest that you buy into new funds or more and more schemes? It might be purely for commission. Typically he/she should not suggest more than 10-12 funds, including debt funds. 

Does your advisor address your queries or divert your attention from the subject? If the market is hot and has delivered phenomenal returns--it cannot last forever--he should be open to rebalancing the portfolio based on your risk profile. 

Does your advisor share your information with third parties without your permission? Find out.

Ask if your advisor attends workshops or meets fund managers and upgrades his skills and knowledge.

Equity markets being dynamic, the advisor should be abreast of the latest developments in the industry. Although an advisor need not available 24x7, he should able to resolve service issues arising out of the investment. He should know the tax implication of all your investments based on your residential status. 

Your mutual fund advisor should not have the tendency to push you to invest. His job is only to enlighten you about the cost of delay in investing. Based on your character and style, he should identify and select right schemes and right process-driven funds. 

Your advisor should not constantly suggest you to aggressively churn the portfolio without valid reasons.

Talk a few times to the advisor to know about the person. Ask for references? Do your homework. It's after all your money that he is dealing with.

by Suresh Parthasarathy, SEBI Registered Investment Advisor,

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