Direct Investment In Mutual Fund:
Now if you are investing in mutual fund schemes directly, you will be charged less management fee by mutual fund. Therefore your returns in direct plans will be slightly better than the investments you make through an agent. That is why this question arises. Should I invest directly in mutual fund or through an agent?
Mutual Fund Agent Vs Mutual Fund Advisor:
Before proceeding further on investing through an agent or directly, we need to understand the difference between mutual fund agent and mutual fund advisor.
Mutual Fund Agent facilitates the mutual fund transaction and provides you after sale/investment services like regular reports, supports when you withdraw… We will discuss more about these services later. For providing these services Mutual Fund Agent is not supposed to charge any fees, because he gets a decent commission / brokerage from mutual fund companies.
On the other hand, Mutual Fund Advisor provides advice on your mutual fund investments. He studies your requirement, educates you on mutual fund, and recommends the mutual fund which fits into your requirement, reviews your mutual fund investments periodically. You are supposed to pay certain fees for hiring an advisor. As this article is about the need for an agent, I am not discussing more about the services and importance of investment advisor here.
Do you need to hire a Mutual Fund Agent?
A mutual fund agent is expected to provide some services and bring convenience to an investor. If you are investing directly in mutual funds, then you need to do those services yourself and bear with the inconvenience consciously.
Checklist of services provided by a Mutual Fund Agent:
A professional mutual fund agent needs to provide a list of services to his clients. As an investor, you need to make sure your mutual fund agent is providing these services or not. You need to hire a mutual fund agent who is capable and willing to provide the below services.
1) Mutual Fund Agent needs to provide you a consolidated report periodically. He should be able to give you different type of reports like absolute return report, annualized return report, profit/loss report, dividend report, transaction report, Investment Summary report. You may need detailed report at times and you need a summarized report at times. You may want to check the total dividend received for a particular period by requesting a dividend report. Your auditor may request a report for the total investments made during the year. Before engaging him, ask for these kinds of different types of dummy/sample reports.
2) The mutual fund agent needs to send you a capital gain report comprising both short term and long term capital gains. You may need this during the advance tax payment time and at the time of filing the income tax returns.
3) If the mutual fund agent provides an online access to your investment portfolio, then you should have provision in your online access to generate these reports.
4) Income tax Scrutiny: Income tax dept at times may ask you about the details/sources for some investments. You could have made an investment 6 year back and withdrawn the same 3 years back and reinvested the redemption proceeds in another scheme. Your mutual fund agent must be able to give you this past history even after 6 years. He should maintain records even for the closed investments. This is something which is very important for a HNI client.
All these services, the mutual fund agent/broker need to provide you without any cost as he is getting paid by the mutual fund companies in the form of commission. Also, we are looking from him, only transaction facilitation not investment advice.
Evaluate both the options:
Now you need to weigh both the options of investing directly and investing through the agent. Can you do all the things mentioned in the checklist by yourself? If your answer is yes, then you can invest directly. If your answer is no then you need to go through an agent who is in a position to provide you all the above services.
Also bear in mind to check the things you do yourself is really worth enough for the benefit you get by way of reduced expenses or increased returns.
A word of caution:
• Carefully check the agent you are going to hire will provide all the services listed above. Before hiring him verify his service track record by checking testimonials given by his existing clients. Also you can get a few references of his existing clients and speak to them and check the agent’s overall services.
• Many agents provide false promise when getting business and they will not turn up for after sale service. So you enquire about the agent’s after sales service track record thoroughly.
• Don’t try to get Free Advice from agents on your investments. Then he may advice you to take a scheme where he gets higher commission. You need to be aware and beware of this conflict of interest. You need to get paid advice and get free (for you and commission based for the agent) service for investment facilitation and follow up services.
Final Note:
You are going to have long term relationship with the agent. So you need to pay enough attention in selecting a right agent for you.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Now if you are investing in mutual fund schemes directly, you will be charged less management fee by mutual fund. Therefore your returns in direct plans will be slightly better than the investments you make through an agent. That is why this question arises. Should I invest directly in mutual fund or through an agent?
Mutual Fund Agent Vs Mutual Fund Advisor:
Before proceeding further on investing through an agent or directly, we need to understand the difference between mutual fund agent and mutual fund advisor.
Mutual Fund Agent facilitates the mutual fund transaction and provides you after sale/investment services like regular reports, supports when you withdraw… We will discuss more about these services later. For providing these services Mutual Fund Agent is not supposed to charge any fees, because he gets a decent commission / brokerage from mutual fund companies.
On the other hand, Mutual Fund Advisor provides advice on your mutual fund investments. He studies your requirement, educates you on mutual fund, and recommends the mutual fund which fits into your requirement, reviews your mutual fund investments periodically. You are supposed to pay certain fees for hiring an advisor. As this article is about the need for an agent, I am not discussing more about the services and importance of investment advisor here.
Do you need to hire a Mutual Fund Agent?
A mutual fund agent is expected to provide some services and bring convenience to an investor. If you are investing directly in mutual funds, then you need to do those services yourself and bear with the inconvenience consciously.
Checklist of services provided by a Mutual Fund Agent:
A professional mutual fund agent needs to provide a list of services to his clients. As an investor, you need to make sure your mutual fund agent is providing these services or not. You need to hire a mutual fund agent who is capable and willing to provide the below services.
1) Mutual Fund Agent needs to provide you a consolidated report periodically. He should be able to give you different type of reports like absolute return report, annualized return report, profit/loss report, dividend report, transaction report, Investment Summary report. You may need detailed report at times and you need a summarized report at times. You may want to check the total dividend received for a particular period by requesting a dividend report. Your auditor may request a report for the total investments made during the year. Before engaging him, ask for these kinds of different types of dummy/sample reports.
2) The mutual fund agent needs to send you a capital gain report comprising both short term and long term capital gains. You may need this during the advance tax payment time and at the time of filing the income tax returns.
3) If the mutual fund agent provides an online access to your investment portfolio, then you should have provision in your online access to generate these reports.
4) Income tax Scrutiny: Income tax dept at times may ask you about the details/sources for some investments. You could have made an investment 6 year back and withdrawn the same 3 years back and reinvested the redemption proceeds in another scheme. Your mutual fund agent must be able to give you this past history even after 6 years. He should maintain records even for the closed investments. This is something which is very important for a HNI client.
All these services, the mutual fund agent/broker need to provide you without any cost as he is getting paid by the mutual fund companies in the form of commission. Also, we are looking from him, only transaction facilitation not investment advice.
Evaluate both the options:
Now you need to weigh both the options of investing directly and investing through the agent. Can you do all the things mentioned in the checklist by yourself? If your answer is yes, then you can invest directly. If your answer is no then you need to go through an agent who is in a position to provide you all the above services.
Also bear in mind to check the things you do yourself is really worth enough for the benefit you get by way of reduced expenses or increased returns.
A word of caution:
• Carefully check the agent you are going to hire will provide all the services listed above. Before hiring him verify his service track record by checking testimonials given by his existing clients. Also you can get a few references of his existing clients and speak to them and check the agent’s overall services.
• Many agents provide false promise when getting business and they will not turn up for after sale service. So you enquire about the agent’s after sales service track record thoroughly.
• Don’t try to get Free Advice from agents on your investments. Then he may advice you to take a scheme where he gets higher commission. You need to be aware and beware of this conflict of interest. You need to get paid advice and get free (for you and commission based for the agent) service for investment facilitation and follow up services.
Final Note:
You are going to have long term relationship with the agent. So you need to pay enough attention in selecting a right agent for you.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (http://www.holisticinvestment.in/) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
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