Mutual Fund Broker
If you are new to the mutual fund space but would still like to invest in it in order to create wealth, a mutual fund broker can be of great help. A mutual fund broker or a distributor is a person/entity who is permitted to sell mutual fund schemes.
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They act as intermediaries in the buying process for which they will charge a fee. Mutual fund brokers will provide guidance throughout the application process and sometimes also help investors in receiving timely statements of their portfolios.
Mutual fund brokers or distributors need to be empanelled with the Association of Mutual Funds in India (AMFI) to operate and are given a unique ID number known as the ARN (AMFI Registered Number).
The ARN stamp is usually affixed on mutual fund applications purchased through the broker or distributor. There are more than 50,000 mutual fund distributors in India.
What does a Mutual Fund Broker do?
As stated above, mutual fund brokers or distributors guide you through the entire process of the purchase of mutual funds which includes giving information about the scheme, how to apply for subscription to mutual fund units, assist you with the KYC (Know Your Customer) process, etc. The broker or distributor may sometimes also offer support on capital gains tax.
Mutual fund brokers or distributors have a set of regulations and responsibilities that they need to abide by and these are issued by the Securities and Exchange Board of India (SEBI). These regulations have been listed in one of the sections below.
Why do you need a Mutual Fund Broker?
Investing in a mutual fund through a broker has many benefits, the most important one being that they educate you on which funds to invest in and the kind of returns you can expect.
This is crucial for new investors who have limited knowledge on how mutual funds work. Also, finding the right mutual fund that aligns with your investment requirements can be a challenging task which is simplified by a broker or a distributor.
The other main reasons why you need a mutual fund broker or distributor have been stated below:
- Convenience - Mutual fund brokers or distributors make it convenient for investors to invest in mutual funds by assisting them in filling up the application form, submitting the required documents for KYC, and other formalities. As they are well-versed with the complete investment process, it will save the time and effort of investors.
- Access - Some fund houses may sometimes offer certain mutual fund schemes only through a broker and hence, if you wish to invest in those schemes, you will have to do so through the broker. Fund houses do this to develop or establish a good relationship with the broker or distributor.
SEBI Regulations for mutual fund brokers/distributors
- Mutual fund brokers/distributors should have the Scheme Information Document (SID) and Scheme Additional Information (SAI) of all the schemes they sell.
- No indicative portfolio and indicative yield will be offered or communicated by brokers/distributors to the investors.
- Clearing a certification exam conducted by the National Institute of Securities Markets (NISM) is mandatory for brokers/distributors to deal with mutual fund houses in relation to selling or marketing of mutual fund schemes.
- Brokers/distributors will be regulated by a due diligence process put in place by asset management companies (AMCs).
- The activities of the brokers/distributors will be monitored by the AMCs to ensure that there are no malpractices involved in the selling and marketing of mutual fund schemes.
- All investor related documents including PAN, specimen signature, KYC, etc., should be available with the broker/distributor.
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