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Emerging Trends in Mutual Fund Distribution

Updated: Aug 7, 2023

INTRODUCTION

Point of view:


You are a mutual fund distributor managing your business in the offline set-up before technology took over. Back then, distributing mutual funds was a complicated task with lots of paperwork, time-consuming processes, manually approaching new clients & handling existing client queries, and offline mode of complying with regulations.


Emerging Trends in Mutual Fund Distribution

However, the mutual funds industry and its distribution landscape have undergone a remarkable transformation in recent years. Today, as a distributor, you have access to an array of digital platforms, opportunity to earn higher commission, and the capability to offer personalized investment solutions. But what does the future hold for mutual fund distribution? How can you conquer success as a mutual fund distributor in this rapidly growing industry?


In this article, we will look at how mutual fund distribution has changed over time and what it might look like in the future. We will explore the trends shaping this industry and give you valuable insights into how funds are distributed and how they might affect your business. Whether you are an experienced distributor or just starting, staying updated on the latest trends in the industry is crucial to thriving in today's competitive market. In this blog, we discuss 10 trends that are transforming the mutual funds industry and how you can adapt your business strategies to succeed in this competitive landscape.


EMERGING TRENDS IN MUTUAL FUND DISTRIBUTION


The Age of Digitalisation & FinTech Partnerships:

Digital platforms have revolutionized the distribution of mutual funds, offering investors access to online portals and mobile apps that provide comprehensive information, real-time updates, and streamlined transactions. Embracing these platforms as a distributor expands your customer base, enables personalized recommendations, and delivers convenient investment solutions. Distributors are now collaborating with fintech startups to enhance distribution capabilities, leveraging their innovative technologies and solutions to streamline processes, improve customer experiences, and expand distribution channels. By partnering with fintech firms, distributors can tap into their expertise and stay ahead in an increasingly digital landscape.


Regulatory & Compliance:

In the beginning, mutual funds were a small part of the financial markets. Though SEBI monitored them, no stringent regulations were imposed, and the markets had numerous loopholes and deficiencies. As the market grew stronger with the expansion of the Indian economy, SEBI brought mutual funds under its regulation purview through The Association of Mutual Funds of India (AMFI). Now, numerous regulations, rules, guidelines, and circulars closely monitor the performance of the mutual funds industry as a whole, in addition to compliance requirements to be mandatorily satisfied by all the industry stakeholders. It is only expected to become more regulated to improve transparency, trust, and geographical reach in the future.


Market Size:

The mutual funds industry is growing at an accelerated rate and lays down a progressive roadmap ahead. Significant growth is witnessed in the Assets Under Management (AUM), SIP inflows, equity investments, geographical contribution, and other numbers. Data published by AMFI shows the projections for growth of mutual funds AUM from Rs. 10 lac crore in 2014 to a whopping Rs. 100 lac crore by 2030. The AUM currently stands at Rs.40 lac crore, and this gap proves that despite the booming progress, there is still an untapped market consisting of many potential investors. This is the perfect opportunity for distributors to penetrate unexplored markets and maximize their distribution coverage.


Earnings Potential:

With the rapid growth of the mutual fund industry in terms of AUM & market share, the mutual funds distribution profession presents a wonderful opportunity of earning potential. The significant benefit of this profession is that you can either pursue it full time or also part time and secure an additional source of income.


Research data shows that collecting just a Rs. 15,000 monthly SIP has the potential to generate a passive income of around Rs 1.5 lakhs a month by the end of 10th year of investment (assuming 12% rate of return and trail commission of 1%). This serves proof to the promising opportunity of passive income that you can earn in the long term.


Close-edge Competition:

You already know that the MFD profession offers great earnings potential. While this is a lucrative benefit, however, there is a challenge present. The best thing about this profession is that anyone above 18 can become a mutual fund distributor and start their own business after clearing the NISM V-A Certification and obtaining the ARN from AMFI. Graduates, aspiring entrepreneurs, those seeking extra income, retirees, and even homemakers can qualify as MFDs. As a result, there is intense competition in this field, which is growing stronger due to AMFI's efforts to encourage more people to pursue this career path.


Lower revenue per unit:

Earlier, when there were only a few MFDs and the industry was at a foundational stage, distributors could earn around Rs. 1 lakh per month by handling just 100-200 investors. However, times have changed. With over 1 lakh active MFDs in the country and more joining the industry, an MFD now needs at least 700-800 investors to earn the same monthly commission. This means the per unit revenue is decreasing as more people enter the MFD profession and manage larger amounts of investor money. In other words, the client-to-commission ratio is increasing. Therefore, it is crucial to develop competitive advantages to stay ahead in this competitive landscape. Few steps that you can take to build a competitive edge is partnering with digital platforms who can help you digitize your business, making it more accessible, building a strong brand identity and establishing a loyal investor base. AssetPlus offers you just the right solution to overcome your distribution challenges.


Investment Approach:

During the initial phase, mutual funds were perceived as a byproduct of the securities market and didn’t receive much attention. People preferred traditional investment options such as fixed deposits, pension schemes, and chit-funds to multiply their savings. Later, as awareness towards investments increased, investors realized the importance of diversification and asset allocation and started investing in stocks for both short term & long term, besides gold, real estate,fixed deposits, etc. Nowadays, the investment curve has shifted towards goal-based investing and financial planning. People do not just invest to grow their savings but they have also started investing to achieve certain personal goals and financial commitments.This has in turn increased investor awareness and financial literacy.


Need for Trusted Advice & Guidance:

In the past, there was limited understanding of financial markets, including mutual funds, and people were cautious, avoiding stocks due to their risky and unpredictable nature. However, the situation has changed. More individuals are now opting for the financial markets to diversify investments, achieve short and long-term earnings, and fulfill financial goals. This shift stems from increasing investor awareness and need for informed decision-making. However, with excess availability of internet resources causing an information overload, investors often become confused and make hasty financial decisions. Thus, there is an increasing need for trustworthy advice and expert guidance. As a mutual fund distributor, this is where you can become a ray of light by offering trustworthy advice & expert guidance to help investors navigate this complex landscape and achieve financial independence.


Professionalism:

As distributors are presented with numerous opportunities, they must take care to demonstrate professionalism. Previously, distributors influenced market performance and investor response with minimal regulations governing their actions. However, the scenario has changed. With the industry's rapid growth, SEBI and AMFI have introduced guidelines, rules, procedures, and a code of conduct to regulate distributor behavior. It is now essential to adhere to these rules and comply with relevant regulations to succeed as an MFD. Professional competence, ethical values, and discipline are vital prerequisites for MFDs.


We have provided two dedicated articles that discuss in detail, the guidelines on dos & don'ts and the regulatory compliances to be followed by MFDs. Read them to learn more about how distributors can exercise professionalism in their business.


Recognition & Reputation:

Recognition and reputation of MFDs in the mutual fund distribution business have gained significance in today's evolving landscape. Building a solid reputation becomes essential for success as the industry is expanding with a growing number of MFDs. Investors seek trustworthy and knowledgeable MFDs who can guide them effectively. Establishing a track record of delivering quality advice, maintaining ethical conduct, and demonstrating professionalism enhances the recognition of MFDs and also builds a solid personal brand for them. Building a positive reputation through consistent performance and client satisfaction attracts more investors and sets MFDs apart in the competitive market, leading to long-term success.



THE ASSETPLUS ADVANTAGE

We have discussed some of the important emerging trends in the mutual funds industry that you have to watch out for in order to stay ahead of the business curve. However, there are both opportunities and challenges that are lined up for the future. In such a situation, you arrive at one common question: “what efforts can I take and what strategies can I implement to gain client trust and become a successful distributor?”


We help you answer this question. Our mission at AssetPlus is to help mutual fund distributors like you to build a strong business and in turn fuel the growth of the Indian mutual fund industry.

Click here to know more about how you can become the most successful distributor and help more people achieve in their journey to financial freedom.


CONCLUSION

The Mutual fund industry has transformed over time, driven by technology and changing investor preferences. Previously, investors had limited access through physical offices and intermediaries. However, the rise of online platforms and mobile apps has revolutionized the industry, enabling investors to research and invest conveniently. Transactions have become faster and more efficient, reducing paperwork. Regulatory reforms have streamlined the process with initiatives like standardized KYC norms. Investor education and awareness have improved, empowering individuals to make informed investment decisions. These changes have led to a more accessible and transparent distribution landscape. The industry is subject to further advancements, with technology playing a pivotal role in providing personalized solutions and enhancing investor experiences.


As the mutual fund distribution landscape evolves, it aims to meet the changing needs of investors, making investing in mutual funds increasingly convenient, efficient, and investor-friendly. By embracing these emerging trends and aligning distribution strategies, distributors can thrive in this dynamic environment, delivering valuable investment solutions. Staying informed, embracing innovation, and positioning oneself as a trusted partner are critical to successfully navigating the evolving mutual fund distribution space.






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