Friday, Sept 01 2023
Source/Contribution by : NJ Publications
We all make efforts to plan our investments, yet we often get dismayed if our expectations aren't met. We may encounter nervousness and loss aversion bias in weaker markets, and overconfidence bias in stronger markets. Driven by emotions, we may make mistakes in volatile markets. In fact, emotions and personal biases are very commonly found in our investment behaviour. Many times, we aren’t even very knowledgeable and skilled enough to make the right decisions. All these factors may severely impact our financial well-being and overall journey to an extent. What is a way out for such investors?
Perhaps what we may need is a helping hand and a support system to keep us grounded in order to maintain our confidence in our investments and to keep a track on serving our objectives. A mutual fund (MF) distributor can be that source of emotional handholding which is in the best position to guide you on your mutual fund investments. He is the one who can help identify our risk profile, help us clear our financial objectives and then provide us with suitable recommendations.
The question of what we can do to make the most of our MF distributor frequently goes unanswered. Investors usually figure out the areas that MF distributors must address to make sure that they have a smooth and simple journey. Yet, investors take a back seat about clearing their expectations and needs. To have a successful and fulfilling financial journey, the responsibility lies on both of us - the investors and the MF distributors alike. It is a shared responsibility and frankly we need real participation and commitment from us as investors as well.. Investors must therefore go one step further and complete their homework and should know how we can benefit the most from the MF distributor.
Here are a few of ways how investors might benefit the most from a MF distributor:
1. Set Clear Expectations: It's beneficial to have an awareness of the services your mutual fund distributor offers. Also make an effort to be explicit about what you are expecting from the MF distributor. This can be in terms of investments, portfolio management, level of involvement, etc. The conversion will also be helpful for the MF distributor to showcase what all he can do and the services he is offering and his style of functioning. Having clarity of what you can expect, the deliverables and what problems can the MF distributor help you solve, can lay a strong foundation on your relationship and can reduce the chances of getting dissatisfied in future.
2. Share complete information about portfolio: A MF distributor relies on the information that you share - be it of your mutual fund portfolio or your needs /financial objectives. Sharing this information will enable him/ her to customize his recommendations and guidance based on your risk profile and financial background. Sharing your portfolio information would also help the MF distributor to assess your real asset allocation and product level, AMC, scheme-level exposure and accordingly recommend a suitable mutual fund portfolio.
3. Get a financial plan prepared: A list of clearly laying out financial objectives or needs is at the heart of any investment planning. Defining your needs, making the required investment and mapping to these and then regularly tracking the progress of the same and filling gaps, if any, is basically what investments is all about. As an investor, we can seek active help from our MF distributor in this process and can rely on him to get recommended on mutual fund portfolios to stay on track of our needs. A MF distributor can help ease the entire process for you.
4. Meet and regularly monitor your portfolio: Make sure that you stay connected and have periodic meetings with your MF distributor, say at least once a year. The conversation points can be drawn to understand the progress of your financial objectives/needs and the performance of your portfolio. These meetings offer a chance to also discuss any changes in investing plans, or financial objectives. You may also ask questions to better comprehend the investment decisions being made.
5. Consult / update any major change in your financial position: If you make any big financial decisions or experience any changes in your financial condition that could affect your risk profile and your investments, do let your distributor know about the same. This covers any changes in current income or expenses as well as life events like marriage, having a child, changing jobs, etc. By consulting with your MFD, you can make sure that your financial objectives /needs and investing strategy gets updated as well in line with your evolving requirements.
6. Get yourself versed with personal finance and financial products: Investors can also have the opportunity to learn and gain further insights on asset classes, investments, products and personal finance in general with the help of the MF distributor. With an open minded approach, one can ask relevant questions, have more meaningful conversations with your MF distributor, and make sound decisions. Your understanding of the suggestions offered by your distributor will improve if you educate yourself on the financial concepts and investment possibilities.
Bottom Line:
There is substantial value a MF distributor brings to the table over years in your financial journey that you can have. There can be no value for putting into things like emotional handholding, avoiding mistakes, influencing and building your investment approach, shaping your financial habits, improving your investment pattern, achieving your financial needs, and the continued guidance in decision making which a MF distributor can actively contribute towards. It is actually upon us to explore and make sure that we realise the possibilities and benefit the most of our MF distributors. Mutual trust, respect, confidence and constant communication are the key elements that bind our relationship with our mutual fund distributor.
