WHERE TO BUY A MUTUAL FUND |
|---|
| Asset Management Company |
| Most cost-effective. Suitable if you like to control what you buy. |
| Trading Account |
| Similar to demat account used to trade in stocks. Used to trade in mutual funds and offered by banks and online trading portals. |
| Financial Planners |
| They do a needs analysis before short-listing a fund. Suitable for those looking at advice on what to buy. |
| Some double up as distributors. Make sure you are aware of the commissions they earn. |
| Banks |
| One-stop shop. Serves well if you have a bank account. |
| Brokers and financial product distributors |
| They sell funds based on new offerings or depending on the market situation. |
| Big source for mis-selling but also the most active, vibrant point. |
Before you buy a mutual fund, it is important to know the types of funds available in the market, their investment objectives and whether they match your financial goals. The investors' objectives further depend on their risk profiles, based on which they can be categorised as aggressive, moderate and conservative. This is also the critereon used by AMCs to classify the funds, making it easy for a buyer to identify them. For instance, if you are looking for a shortterm fund for wealth creation, then you should pick a sector fund, which offers high risk, but also high returns. However, if you want regular payouts, go for an income fund, which offers capital preservation.
Like any other financial product, funds too are sold through intermediaries like a financial adviser or by the fund house itself. The intermediary's level of involvement varies depending on the role that he plays. So you can pick up funds based on the advice of your financial planner or as per your own research if you buy it directly from the fund house.
The various contact points for funds have unique problems associated with each, rendering them vulnerable to a certain degree of mis-selling or uninformed purchase. However, ignorance is no excuse to blame the intermediary for misselling. To address such complaints, the fund industry offers options that can help one from being sold a lemon. These provide control at your end to aid in the selection and picking of funds of your choice.
Whichever point of sale you opt for, remember that intermediaries, except when you directly buy from an AMC, earn a commission on every sale that they conduct. So if someone is pushing a particular fund type or scheme, understand that they would also be looking at their gains from the sale. Also check with the intermediaries who insist on churning your fund portfolio too frequently. This is because they would be earning a commission on each transaction. On the other hand, you might not gain significantly as you would have moved from one diversified equity fund to another with a similar performance.
The AMCs come up with different types of fund schemes and it is important for investors to buy those that match their investment goals. There is money to be made in mutual fund investments provided you play your cards right and zero in on the right source for buying the funds. Don't let the intermediary push you into buying a fund, make an informed choice and buy a fund that suits your financial needs, not your intermediary's.
