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Exploring the Specifics of the Mutual Fund Distributor Business

The mutual fund market offers an extensive landscape of multiple funds with different strengths and opportunities. It is challenging for an average investor to dedicate hours to researching, even with the surplus of information available on the internet. 

During these instances, a mutual fund distributor is the perfect professional to help investors familiarise themselves with the market. These professionals also help enlighten users about the differences in equity, debt, index, and hybrid funds to enable informed decisions based on their risk appetite.

However, the most attractive part of becoming a mutual fund distributor is the flexibility of the role. When you start a mutual fund distributor business, you have complete control over your working hours and commissions. The only upper limit is your willingness to interact with prospective clients looking to take their first steps into mutual fund investments.

Curious to dive deeper into the nuances of the mutual fund distributor business? Read on as we demystify the roles and responsibilities of a mutual fund distributor and discuss the requirements to set up the business.

Mutual Fund Distributor – The Basics

The Association of Mutual Funds in India claims the Indian mutual fund industry comprises 6.12 crore active SIP accounts. These figures are expected to advance as the number of job holders increase and decide to park surplus funds every month into either mutual funds or stocks.

Before taking their first steps into the market, these new investors will seek a complete rundown of the intricacies of the mutual fund space. This is where a mutual fund distributor plays a crucial role.

In simple terms, mutual fund distributors are intermediaries who work directly with potential and current investors looking to invest in different funds present in the market. Mutual fund distributors are official members who work on behalf of several mutual fund houses with a licence from the Securities and Exchange Board of India (SEBI). 

Their primary responsibilities include the following.

  • Staying abreast of the performance of different fund houses in the market to track performance and offer financial advice to investors.
  • Perform qualitative and quantitative analysis to assess the long-term feasibility of certain funds.
  • Suggesting investment opportunities according to the risk appetite and tolerance of individual investors.
  • Enlightening investors about an investment strategy and helping them choose funds for monthly or weekly SIPs based on their long-term goals.

Despite the importance of their role, mutual fund distributors are not officiated to ask for direct payments from the investors. They receive salaries in the form of MF distributor commissions granted by the fund houses, depending on the SIP value or investment of the respective investors. 

Eligibility to Start a Mutual Fund Distributor Business

Provided that mutual fund distributors are subjected to regulations from SEBI, budding distributors are required to fulfil specific prerequisites. 

  • The candidate must be at least 18 years of age.
  • The applicant must have completed 12th grade or three years of diploma following the 10th grade.

Upon fulfilling these criteria, you are permitted to appear for the NISM Series V-A: Mutual Fund Distributors Examination

  • SEBI mandates the NISM certifications for mutual fund distributors planning to operate as freelance professionals or open a business. 
  • Once you clear NISM, you will receive a certificate, an ARN number, and an Employee Unique Identification Number (EUIN)that officiates you as a representative for mutual fund houses. 

The certification is only valid for three years from the date of issuance and will need to be revalidated during the same period.

The next step is to get affiliated with an asset management company (AMC) and enter into an agreement to sell their funds at a predetermined commission. Collaborating with an AMC also has other benefits, as they supply you with training and marketing materials, as well as help you understand the market during your initial training period.

If you are registering as an organisation or an entity, all employees of the business must get their separate ARN numbers and NISM certifications. 

The Benefits of Starting a Mutual Fund Distributor Business

The most significant advantage of operating a mutual fund distributor business is the absence of capital. Distributors work under the umbrella of specific AMCs and use the resources at their disposal. All the expenditure acquired as the MF distributor commission can be directed into increasing your customer base by engaging with more potential investors daily.

In addition to little to no capital expenditure, here are the other benefits synonymous with a mutual fund distributor business.

  • You are not answerable to a higher authority as in most hierarchical organisations. Decide your own hours and choose your preferred time to interact with customers.
  • There is no upper limit on the profit margin. You are free to bring in as many customers as you want to the fund house, and your corresponding commission will keep increasing.
  • You gain the flexibility to start earning from a young age, especially if you aspire to have a closer look at the country’s financial markets.
  • You receive extensive insights into the working of mutual fund houses and their operations to accelerate your learning curve.

Not to mention, you are free to quit whenever you require. Most fund houses do not have a lock-in period for mutual fund distributors, making it a viable career option without extensive drawbacks. The only requirement is that you possess a keen eye for the fluctuations in the mutual funds market.

Summing Up

Mutual fund distributors enjoy a host of benefits – from earning over-the-top commissions to having flexible work hours. The fact that they are officially regulated and recognised by SEBI also grants them more authority and security over similar professions.

In light of the influx of users looking to secure their financial future with a portfolio comprising diverse investments, fund houses are always in search of distributors. But in a market full of choices, it can be challenging to ascertain the best platform for your skills.