Category Archives: The Daulat Blog

Due to the prevalence of technology, decisions are made poorly when there is a lack of knowledge, information, and trust among different age groups. Investments require thorough market and fund knowledge, as well as broker trust. Most novice investors rely on distributors or advisors to show them the right path because they need more time and expertise. This blog’s goal is to define Mutual Fund Distributors (MFDs) and Registered Investment Advisors (RIAs), as well as how to select one.

Mutual Fund Distributor (MFD)

The term “mutual fund distributor,” also known as “MFD,” refers to a person or organization that is governed and registered with SEBI (Securities and Exchange Board of India) and the Association of Mutual Funds (AMFI) and who serves as an intermediary to assist investors in purchasing and disposing of mutual fund schemes.

An MFD may be connected to a single or several mutual fund houses. By providing you with the investment plan that best suits your financial goals based on your risk appetite, they help you make investment decisions. They are compensated by the mutual fund companies.

They regularly track fund information and keep an eye on the performance and operation of the mutual fund sector. They also carry out qualitative and quantitative analyses using databases.

An MFD carries the following duties for its clients:

• Determining a client’s risk appetite
• Deciding the asset allocation
• Recommending relevant mutual fund schemes across equities, debt, gold etc.
• Executing the investments on behalf of the clients via SIP or lumpsum
• Monitoring and tracking the performance of schemes
• Suggesting suitable changes from time-to-time

Eligibility of an MFD

• 18 and above of age.
• Qualify for either class 12 or class 10 with three years of diploma.
• As SEBI requires, the applicant must pass the NISM Series V-A certification exam.
• Every employee in a company that uses MFD must be certified.
• Candidates who pass the NISM certification test are given an AMFI Registration Number (ARN), which is valid for three years.

Registered Investment Advisor (RIA)

Registered Investment Advisors (RIAs) are people or businesses that have registered with SEBI to offer clients financial guidance and help in areas like:

• Decide on and evaluate financial goals.
• Risk profiling to comprehend the client’s risk tolerance.
• Recommend a suitable asset allocation based on the client’s risk tolerance.
• Recommend suitable mutual fund plans and other financial products depending on the client’s financial targets, risk tolerance, and asset classes.
• Review the suggested financial products frequently and adjust as necessary.
• Advise on tax planning, estate planning etc.

They are required to create a formal and a written investment plan for their investors, considering their objectives, finances, as per the guidelines from SEBI. As a result, they accordingly charge out-of-pocket fees from clients for the said services. The fee structure can be any of the below:

• Current prices: Ongoing costs for the services rendered.
• Flat fee: an annual fee set by the advisor and the investor after consultation.
• Percentage of Assets: Collected as a proportion of the assets. As the asset base grows, the fee increases in line with the growth.

Eligibility of an RIA

• Five years of experience in the industry in addition to professional certification, master’s degree, or diploma in finance, business management, banking, capital markets, accounting, commerce, economics, or insurance.
• Level 2 certification from NISM.
• Applicants must have a minimum net worth of INR 5 lacs.
• Net worth for organizations must be at least INR 50 lacs.

Difference between MFD and RIA

Conclusion

The decision ultimately depends on the investor and what he or she needs. If an investor wants advice and guidance solely on their mutual fund investments, then they are better served by an MFD. But if one has more complex financial needs that require assistance with tax planning, estate planning etc. they should consider getting the help from an RIA. One must weigh the costs and benefits involved with both options before taking any decision. 

Portfolio Management Services (PMS) is a phrase or a word that you would have heard from your friends and family. 

In a world full of uncertainty, we all desire to lead stable lives with sufficient income to cover our daily expenses as well as long-term financial goals. For a beginner, investing might be challenging. Time is required to understand the market, and not all investors have that. To avoid losing money or having your funds locked up for an extended period due to a bad investment, you will need assistance and guidance.

These investors can look forward to investing in a professional manner either through a mutual fund or avail of Portfolio Management Services. In this post, we will talk about what a PMS is and how it is useful to you. But before that, let’s first understand what is a portfolio and why we need one.

What is a Portfolio?

One of the most basic ideas in business and investing is a portfolio. It is a collection of assets that include stocks, bonds, cash and cash equivalents, equity projects, life insurance, real estate, and other assets that are generally owned by a person or an entity depending on the income or investment. It also includes closed-end funds and exchange-traded funds (ETFs). 

What is Portfolio Management Service (PMS)?

To assist investors in achieving their financial goals while keeping the desired degree of risk, the Portfolio Management Service (PMS) provides a collection of bespoke investment solutions. The PMS manager makes sure that the investment requirements match the risk level of the individual investor. The service is personalized to the investor’s output goals as well as his or her aptitude and ability to accept risk. Prior to executing the ideal portfolio, PMS takes the time horizon, tax consequences, liquidity, asset allocation etc. into account. 

For this, PMS creates a policy known as an Investment Policy Statement (IPS), which uses information such as the client’s needs, prior investment performance, and financial situation to analyze and provide a clear answer for investing in the proper area.

Types of Portfolio Management Services

1. Active Portfolio Management: To provide greater and better returns, this type aims to outperform a market index like the Nifty or the BSE. The manager will be free to plan, select the necessary securities, and actively buy and sell assets based on institutional data to surpass the index and spread the portfolio across investments to reduce potential losses. The method, though, involves a higher risk to get an extra return. Investors that can handle more risk and want bigger capital gains should choose this option.

2. Passive Portfolio Management: It involves investing in comparable securities with comparable weights to mimic the behaviour of a market index.  The manager duplicates and follows the stock market index portfolio to give investors returns that are consistent with the index. Compared to active management, transaction costs from the turnover of securities are low since portfolio volatility is kept to a minimum than the tracking index. It is suitable for long-term investments and security consolidation in one place.

3. Discretionary Portfolio Management: The portfolio manager has total control over the portfolio and is free to use any strategy created for groups falling into similar categories to accomplish investment goals acceptable to the IPS. This legitimises a higher commission because it calls for more participation in decision-making. For customers who are time and investment challenged, this is the best choice.

4. Non-discretionary Portfolio Management: The investor will choose the recommendation and timing; the PMS will only make suggestions for investments. The investor could thus gain financial planner knowledge through this use of PMS without giving up investment control because they make the final decision rather than the fund manager.

Choosing the best Portfolio Management Services

1. Seek out a portfolio management service that constructs a portfolio optimised your own needs
2. Pick a service that offers consistent real-time insights, as well as online portfolio access.
3. Examine customer feedback and reviews to choose the best choice from the options that have been shortlisted.
4. Finally, pick a service that offers ongoing customer support and helps you with audited reports and income tax calculations for filing returns.

Pros and Cons of PMS

Conclusion

Due to its emphasis on creating investment strategies to create a customized portfolio that yields the best returns, Portfolio management services investment is a sustainable option. Because this investment option is carefully guided and monitored by experienced managers, investors can place their cash or equities with professional financial advisors. It is essential to pick a strategy that is relevant to your own investing style rather than blindly investing in something that may not be relevant to you.