Should you invest on your own or through a mutual fund advisor? All investors ponder over this as they also understand that going “Direct” will save them part of the expense ratio. On one hand there is a lure of saving roughly 0.75 % every year as against a professional who may generate much more the stated 0.75%. No doubt an expert as a financial advisor is a better option. It is important though, that the advisor is proactive, ethical, service oriented and generates a higher return that an investor would get investing on his own.
In-depth understanding, knowledge, experience, and skills and uncanny “sixth sense” are required in mutual funds advisory. Though it’s a child’s play to find information and compare various schemes online but investing your hard-earned money is no child’s play. Now, lets seriously look at what a Mutual fund advisor needs to do:
1- Educating the Investor
The prime work of the advisor is to make a financial plan for the client according to their financial goals and educating how to achieve them. This includes exploring various options for investment. Therefore, you can easily evaluate which is right for your financial goals. Choice of investment may vary from Fixed income, Hybrid Equity funds or Equity funds.
2- Evaluating the Risk-Taking Capacity
An advisor recommends the appropriate investment strategy as per the risk appetite of the investor. For example, equity funds are riskier as compared to debt funds, and not everybody will consider it. Before planning an investment strategy, the advisor considers the short-term financial goals, long-term financial goals, expenses, current financial responsibilities, age, investment tenure, and family status.
3- Analyzing Investment Options
After understanding the goals and requirements of the client’s, the advisor thoroughly analyzes the market conditions. Then they suggest debt funds, equities, or money market instruments accordingly. Moreover, advisors also stay updated with the latest trends and financial news to make sure that they provide relevant advice.
4- Planning Investment Strategy that is consistent with the market conditions:
Once the possible investment options of the client have been analyzed, the advisor plans a right investment strategy. This includes combining various investment options to modify the portfolio so as to reduce risks and increase returns. For example, Mutualfundwala have been advising for the last over 12 months to exit mid and small cap funds and get into safer Hybrid funds. The recent fall has proved the advice bang on. Thus, advisor plays a significant role and keeps a close eye on the portfolio and recommend changes with every significant change in political or macro/micro economic conditions.