A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What is the difference between Mutual Fund Distributor and Investment Advisor?
In a way, both should help with your investment decisions, which may include selecting mutual fund schemes. However, as the name suggests, a mutual fund distributor is more likely to focus on mutual fund products, while an investment advisor may have a broader basket of products and services.
Does it mean that a mutual fund distributor would sell any mutual fund scheme to investors just to earn commissions? Well, the regulations are very strict in this regard. If a mutual fund distributor sells a mutual fund scheme that is not suitable for the investor who would qualify as a “manta sale”, which is a crime.
A mutual fund distributor is required to understand the investor’s risk situation/profile and to recommend products adapted to the investor’s needs at the time of recommendation. On the other hand, an investment advisor can look at a bigger picture, which may include valuing the investor’s assets, liabilities, income and expenses and recommending products.
Both are registered entities and therefore also regulated. While investment advisors are registered directly with SEBI, mutual fund distributors are registered with AMFI, the Association of Mutual Funds in India, which is the mutual fund industry association.