Are You Asking The Right Questions To Your Mutual Fund Adviser?
May 13, 2019

Author: Divya Grover

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(Image source : freepik.com)

Mutual funds are increasingly becoming preferred choice of investment for many. But given the plethora of schemes from different mutual fund houses, it is not easy for a novice investor to pick the right mutual fund scheme.

Mutual fund advisers are a boon to such people who are unable to make financial decisions on their own. But finding the right adviser for your needs is also an important decision that you will need to make.

The adviser you approach should be able to represent you well and handhold you to the path of achieving your financial goals. There have been instances where investors have felt cheated or unsatisfied as the advisers don't follow a prudent approach. We don't want our hard-earned money to be invested by someone we don't trust. Some people thus resort to invest on their own due to the distrust. But as you might not have enough knowledge to invest on your own, you may suffer losses.

[Read: 3 Mistakes To Avoid While Choosing A Financial Adviser]

If you want clarity on whether your money will be in safe hands, you should ask your mutual fund adviser the following questions.

  1. Credentials

    Your adviser must ideally have professional qualifications such as CFA, CFP, and so on. These courses require its candidate to go through rigorous training. They are required to follow a code of conduct and abide by the principles of ethics and integrity of the profession. Such qualification means that your adviser has thorough knowledge about rules, regulations, and developments in the field of investment and will be able to give you reliable advice.

    You may also ask for the portfolio performance record of other investors the adviser handles to give you a better idea of how your portfolio will be managed.

  2. Risk profile matching

    You should ask if the risk profile of the scheme aligns with your own risk profile

    There are mutual fund schemes for different types of investors based on their risk appetite. The adviser can assess your risk profile by asking you relevant questions.

    An adviser should not recommend small or mid-caps schemes if you are a conservative investor or a balanced or debt scheme if you are aggressive investor. However, a small portion of the portfolio can be held in such schemes only if you, the investor, is willing to take additional risk.

    By matching your risk profile with that of the scheme you can achieve the goals as per your risk-return expectations.

  3. Scheme track record

    While the advisor will recommend you schemes that have out-performed their benchmark, you should enquire about the schemes that have performed consistently well across bull and bear market phases. Also ask about rolling returns across 1-year, 3-year and 5-year time frame, and performance in terms of risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation over a 3-year period.

    Qualitative aspects such as the efficiency of the fund house and the fund manager also play an important role in selection of the right fund. Another aspect to watch out for is concentration of the holdings in the scheme as the holdings should be well-diversified.

  4. Path to goal

    Understand how will the portfolio help to achieve your financial goals and what will be the time horizon and investment required to achieve them. For that purpose, the adviser should be able to classify your goals as short, medium, and long-term and devise investment strategy accordingly. The investment strategy must be based upon your age, income, expenses, risk profile, time horizon, insurance and contingency requirement among others.

    Additionally, ask how often the portfolio will be reviewed to ascertain if the portfolio is on the right track to achieve your goals.

  5. Value added services

    Along with advisory services, mutual fund advisor should ideally provide you various tools and calculators as value additions so that you can track your investments online. Besides, also assess if the advisers provide internal research reports so that you can make best investment decisions.

    PersonalFN is focused on providing well researched, unbiased and expert advice to you. We have a highly qualified and experienced team of research analysts who track various personal finance instruments including mutual funds, fixed income instruments, gold, and insurance.

  6. Grievance redressal

    If you have any complaints against the fund, the distributor or any other intermediary you should be aware how your queries can be resolved. Ask what will be the first point of contact in case of any queries and what will be the next step if you are not satisfied with the response.

  7. Terms & conditions

    Terms & conditions are the highly ignored areas while making investments. You should ask your adviser about the charges involved such as exit load, commission, tax implication of different schemes, lock-in period if any, option/plan available under the scheme, how and where your money will be invested and your various rights and responsibilities as an investor. These are important for you to be able to take an informed decision.

As an investor, you should be smart enough to not get lured with false promises, especially when it seems too good to be true. Select the adviser only after proper due diligence. It is important that the advice by the adviser is unbiased and research-backed. You may carry out your own basic research about the fund and the fund house. Carefully read all the documents and ask questions in case of any doubt.

[Read: Key Points To Be A Responsible Investor In Mutual Funds]

Every investor needs a financial guardian who can handle the hard-earned money of investors with enough care, prudence, sense of responsibility, and intelligence. You can reach out to a Certified Financial Guardian in your area by clicking here.

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