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 fund managers 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 needs based on an analysis of your assets, they help you make investment decisions. They receive payment for the mutual fund plans they promote to potential investors.
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 authorizes:
- Buying a mutual fund scheme in full.
- Systematic registration of investment plans.
- Altering among various schemes.
- Redeeming mutual fund schemes in one lump sum.
- Registered systematic withdrawal plan.
Eligibility of 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, valid for three years (ARN).
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.
- Invest in emergency funds.
- Suggestions for tax savings and planning.
They establish an investment plan for their investors, considering their objectives, finances, and present crisis because they have more responsibilities for their clients than mutual fund distributors, known as a fiduciary obligation. They also charge a fee for services like:
- 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 gets smaller.
Eligibility of 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
|Services||Concentrate on buying and selling mutual fund schemes.||Thorough financial management services, investment strategies, insurance, and tax guidance, etc. are all available in one place.|
|Tie-up||Can collaborate with one or more fund houses and make recommendations based on the brokerages they offer.||There isn’t any connection to any mutual fund provider. They consequently suggest mutual fund plans that are most appropriate for a client’s needs.|
|Conflict of Interest||High||Null|
|Fees||Commissions from fund house and customers.||Current fees, flat fees, percentages of shares, or other fixed fees.|
|Partnerships||Registered with SEBI and regulated by AMFI.||Registered with SEBI.|
|Schemes recommended||Due to commission, conventional mutual fund schemes incur significant costs.||There are fewer costs and no commissions with direct mutual funds and other portfolios.|
The decision ultimately depends on the investor and what he or she needs. According to the agreements with the houses, an MFD may only offer a small selection of options, which could lead to less appealing programs for the customers. However, RIAs are not bound by these agreements, allowing investors to invest however they see fit. While both MFD and RIA can require significant investments, MFD claims commissions, while RIA requires a large initial investment. Still, MFD may be a good option for beginners with average incomes if it offers a good scheme with reputable fund houses.
A well-qualified MFD may or may not provide advice on other financial platforms, but an RIA can help you with careful financial planning.
Remember, in the long run, MFD will foresee their profits, but RIA will provide advice as they are under the constant radar of SEBI.