Although unofficial estimates say the number of mutual fund (MF) distributors is about 40,000 to 50,000, not all of them are of the same type. There are broadly three different types of MF agents.
Your bank doesn’t just allow you to stash away your savings in savings accounts or doesn’t just give you loans to buy cars and home. It is also a financial supermarket that sells mutual funds, insurance, fixed deposits, Public Provident Fund accounts (if your bank is a government-run one) and equity shares (some private banks offer equity brokerage services). More and more banks these days are getting active in selling mutual funds. As per data provided by Computer Age Management Services (Cams) Ltd—one of India’s largest registrar and transfer agents—banks saw a gross inflow of about Rs 12,797.61 crore and an outflow of Rs 12,779.91 crore between April 2011 and March 2012. Buying and selling from banks is convenient as you just need to sign application forms; your money seamlessly goes out from your bank account to your MF investment. But some banks are also notorious in churning your money; they suggest you to buy a fund and then nudge you to switch to another after you complete a year in it.
These are distribution outfits that have branches throughout the country. Some national distributors specialize in regions like say western and northern India. As per Cams’ data, these distributors saw an inflow of Rs 12,136.31 crore and an outflow of Rs 10,903.61crore worth of MF schemes. Many national distributors offer a wider array of products than banks because they can align themselves to banks as well as to post offices by offering postal schemes like national savings certificate and post office monthly income plans. Unlike banks, national distributors don’t see high attrition; it’s possible that the same relationship manager manages your money for more than a year.
Independent financial advisors
IFAs are individual agents that are typically founded by a family or an individual. S/he may have an office and perhaps a branch or two, but a single IFA is not spread out like a bank or a national distributor. Unlike banks, where it is possible to find a new relationship manager serving you every year, IFAs offer continuity. Since IFAs’ livelihood depend on his or her customers, and it takes a much longer time for an IFA to get clients as compared with banks and national distributors, you will typically see your IFA for a long time. Some IFAs graduate to being financial planners by taking the certified financial planner examination. These IFAs are usually well qualified to manage your money and not just sell you mutual funds.