How to choose a mutual fund agent

Since you are going to have a long-term relationship with your agent better pay enough attention in selecting a right agent.

Most investors in mutual funds often come across this question: Should I invest directly in mutual fund or through an agent?

Now if you are investing in mutual fund schemes directly, you will be charged less management fee. Therefore your returns in direct plans will be slightly better than the investments you make through an agent.

Before proceeding further on investing through an agent or directly, we need to understand the difference between mutual fund agent and mutual fund advisor.

The author is an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner 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

A mutual fund agent facilitates mutual fund transactions and provides you after sales/investment services like regular reports, supports when you withdraw... We will discuss more about these services later. For providing these services the mutual fund agent is not supposed to charge any fees, because s/he gets a decent commission / brokerage from mutual fund companies.

On the other hand, mutual fund advisors provide advice on your mutual fund investments. S/he studies your requirement, educates you on mutual funds, recommends the mutual fund which fits into your requirement and 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 her/his clients. As an investor, you need to make sure your mutual fund agent is providing these services to you. You need to hire a mutual fund agent who is capable and willing to provide the services listed below.

1. A mutual fund agent needs to provide you a consolidated report periodically. S/he should be able to give you different type of reports like absolute return report, annualised return report, profit/loss report, dividend report, transaction report, investment summary report. You may need detailed reports at times and you need a summarised 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 you made during the year. Before engaging her/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 for 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 six years back and withdrawn the same three 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 six years. He should maintain records even for your closed investments. This is something which is very important for an HNI client.

All these services, the mutual fund agent/broker need to provide to you without any cost as mutual fund companies pay this to her/him in the form of commission. Also, you are looking only for transaction facilitation and not investment advice from her/him.

Evaluate both the options

Now you need to weigh both the options of investing directly and investing through an 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 if the agent you are going to hire will provide all the services listed above. Before hiring her/him verify her/his service track record by checking testimonials given by her/his existing clients. Also you can get a few references of her/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 sales services. 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 they may advice you to take a scheme where they get higher commission. You need to be aware of this conflict of interest. You have a right to get free service for investment facilitation and follow up services