It’s not tough to find a good mutual fund (MF) agent, but you can also land up with someone who hardly knows his stuff well or doesn’t have good service standards. You may not know much about MFs, but as long as you ask the right questions—no matter how silly they sound—you’ll do just fine.
All MF agents are supposed to pass a certification test that qualifies them to sell MFs. Once they qualify, they get an Amfi Registration Number (ARN) and a card. Though it’s highly unlikely you will be approached by anyone who doesn’t have an ARN card, it’s safe to ask the agent to show his card.
Buying and selling
Always ask why you are given certain MF schemes. Ask for how long you have to stay invested in them. Steer clear of agents who tell you to invest with a time horizon of a year, if it is an equity fund. If your agent tells you to stay invested for at least three years, it’s a good start. Try and test his knowledge of the scheme by asking basic questions. Avoid agents who show an unusual proximity to just a few fund houses. But if the agent recommends a plethora of fund houses, ask “why”, there as well. Look out for convincing answers. Ask whether the scheme has a lock-in or exit loads.
Agent’s job is not over once MF schemes are sold. The agent should service till you are invested. Ask whether she/he will mail account statements to you if the fund house doesn’t send on time. Some agents also send periodic performance statements of portfolio. Most importantly, if you are a first time investor, you need to be compliant with the know-your-customer (KYC) norms. If you aren’t already, ask your agent to help you get it done. Avoid the agent who doesn’t want to take responsibility. You may change your address in future. In which case, you will need to update KYC records and inform the fund houses. Ask if your agent will help you here.
Aside from asking his fees, ask how frequently he will charge. Since fund houses can no longer charge entry loads (2.25% charge on initial investment that was eventually passed on to agents; they were banned in 2009), distributor is supposed to charge you directly. Additionally, last year, the Securities and Exchange Board of India allowed agents to charge a transaction fee of Rs100 per subscription for existing investors and Rs150 for new investors. Your agent may or may not collect this charge; it’s optional. For all you know, you may not be charged directly. If that is the case, it’s important to know how your agent earns money on your investment.