Mutual Fun — Lay of the land — s1e1

Distributors

We interrupt this program for an announcement — We are trying to change things a little at Base, in the meanwhile we thought it would be fun to write a bit about Fintech space in general. We spent the last 2 years dabbling in everything ranging from trying to setup a Cooperative Bank to figuring out how the bond market works, my hope is that these articles will help us clear our own understanding of the space and maybe even add some value/entertainment to folks landing here 😀.

At this point everyone and their “Fintech” startup (including this one) has probably tried to sell you a Mutual Fund. Through this series I try to map out all the different players involved in the Mutual Fund ecosystem in India.

This post deals with Distributors. Brace yourselves for an overload of acronyms, weird drawings and gifs.

So you decided to try your hand at this investing thing. You whip open your mobile phone and install the fintech app that everyone is talking about this month. But who is allowed to sell you mutual funds? — Enter the “Distributors”

Artist’s impression of a Mutual Fund Distributor

Artist’s impression of a user trying to buy Mutual Funds through their phone

Distributors — ARMFA, RIA ( MIA ?? )

The Association of Mutual Funds in India (AMFI), a self regulating body ( because we can definitely regulate ourselves — pinky swear. Honestly though they do an amazing job, ever wonder why no celebrity endorses a mutual fund 😀 ) says that only people/organizations with people, who pass an exam and get a registration number can sell mutual funds 😒.

There are two ways of doing this.

The first, to pass “ NISM -Series V-A : Mutual Fund Distribution Examination ” and get registered with AMFI as “AMFI Registered Mutual Fund Advisors”( ARMFA )

The second, to pass two exams “ NISM -Series-X-A: Investment Adviser (Level 1) and NISM -Series-X-B: Investment Adviser (Level 2)” and get registered with Securities and Exchange Board of India ( SEBI ) as “Registered Investment Advisers” ( RIA )

Artist’s impression of a Registered Investment Adviser

ARMFA can take a commission from the Mutual Fund and incidentally advise while making a sale. How ARMFAs make money is pretty straight forward, the incentives seem to align ☑️ ( Mostly anyway, unless the Mutual Fund gives out high commissions to push shoddy funds )

RIA can advise on your investments and facilitate Mutual Fund transactions, but can’t sell you commissioned investment products ( but some of them do sell you non SEBI regulated commissioned products. *cough* — Gold ). The trend these days is non commissioned - Direct Mutual Funds, most of the organizations facilitating these are registered as a RIA. The incentives are pretty funky in this case unless the RIA charges upfront for advise or transactions, which of-course most of these apps don't do.

I can rant for hours on how messed up this is and how every fintech app thinks that they are behavioral magicians, plumbers who can find some way of making money off their users in the future without scaring them away.

But then you probably have heard this a gazillion times so far or are convinced that the miracle workers can work their miracles.

If you made it this far, I have done a pretty decent job of keeping this fun and you probably now know who can sell you Mutual Funds (Does it matter though? 😉 ).

Before I lose you to a notification.

Artists impression of this post’s author going away