Mutual fund distribution channels


About the mutual fund distribution channel

The distributors of mutual funds can be an individual

Considerable development has occurred in the mutual fund industry over the last decade. The flourishing capital market and attractive tax regime are the prime reasons for this phenomenal growth. And the ultimate beneficiary of this growth is its investors. Distributors play an important role in the expansion of the mutual fund industry.  In fact, they are the main link between the investors and the fund houses. The distributing channels ensure the prosperity and survival of the mutual fund industry. Get an idea about the mutual fund distribution channel in this post.

Mutual fund- a concept with a defined investment strategy

A mutual fund is a trust that pools money from different investors who share a common financial goal. Those who wish to invest in this instrument buy units of a particular scheme. The scheme that they choose must have a defined strategy and objective when it comes to investment. The fund manager collects money from various investors and then reinvests it into different types of securities. They invest them in money market instruments, shares, and debentures based on the scheme objective.

A well-organized and effective distribution channel

Like any other consumer industry, the mutual fund industry also requires an effective and efficient distribution network. The consumer base in this industry is very large, and trying hard to attract retail investors. The distribution channels act as the main vehicle for large collective investments. They work on the principle of pooling money to make funds. A good portion of the mutual fund investment occurs at the retail level. The vital link between the investors and mutual funds are the agents and distributors.

Main distribution channels

Mutual fund distributors are not directly registered with the SEBI in India. The Securities and Exchange Board of India has mandated the distributors or agents of mutual funds to register with the AMFI (Association of Mutual Funds of India) through various circulars. They also bind to follow the code of conduct prescribed by AMFI. But some stockbrokers, sub-brokers, and investment advisors registered with SEBI for the distribution of mutual funds.

The distributors of mutual funds can be an individual or an entity. The main distribution channels of this investment instrument are:

Agents or distributors: An agent acts as a broker between the fund house and the investor. They also act on behalf of the principal but not exclusive to the fund. Instead sells other financial services as well. He understands the needs of the investor and offers investment advice to address his concerns. An agent also evaluates the risk tolerance and analyzes investment options, and brings a suitable investment strategy.

Distribution companies: It is another distribution channel of mutual funds. They sell different products of mutual funds on behalf of the fund houses. Several sub-brokers or employees are there under such companies. Such distribution companies manage the distribution of numerous funds, and they receive commissions for their services.

Banks and NBFCs: Many banks, especially foreign and private banks, distribute mutual funds. They provide almost similar services as the distribution companies. Like distribution companies, they provide services on a commission basis.

Direct Marketing: Many mutual fund houses sell their own products through the employees and sales officers of the AMC. The main aim of this distribution channel is to mobilize funds from institutional investors and high net-worth individuals.

E-commerce platforms: Apart from the above distribution channels, the Securities Exchange Board of India proposed new distribution channels like E-commerce platforms for selling mutual fund schemes. In digital India, many people find the internet as a solution for buying products, getting services, and address them each query. So, the arrival of e-commerce platforms can help many potential mutual fund investors.

Before investing in a mutual fund, you must have a deep understanding and knowledge about it. With the arrival of the internet, investors can get all information about any investment instrument online.  And mutual fund features in the portfolio of every individual. The Securities Exchange Board of India might bring new channels to widen the scope of distributing mutual funds.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh