How to get the best from your mutual fund advisor…

A mutual fund advisor or a financial advisor is a key person in helping you take your investment decisions. The relationship between an advisor and investor is advisory in nature. While any advisor would try her best to help you meet your financial goals, the relationship with your advisor can really fructify if you ask the right questions. Remember, the best of financial advisors cannot be fully effective if you do not probe the advisor and ask them questions. After all, we are talking about your goals and your resources. Nobody understands them better than you. But what is it that you need to ask your financial advisor?

Explain your financial needs with as much clarity as possible…

This is the starting point. You need to define goals. Typically your needs will be in terms of capital appreciation, risk cover, liquidity, tax saving etc. The beauty of mutual funds is that you have specific products that can take care of your retirement needs, your child’s education and tax saving. Try to be as elaborate as possible. Try to list down all possible goals that will require money to achieve and translate into financial terms to the extent possible. Get a basic template from your financial advisor and use that as a starting point for identifying your goals. In this situation, remember, that the earlier you start the better.

Don’t overestimate your assets and income. Underestimation is still OK…

This is a very important stage. When you plan your goals, you also plan which mutual funds and which insurance schemes will help you meet your goals. Try to be as conservative as possible in measuring your resources and try to be as generous as possible when measuring your liabilities. When you are estimating your monthly cost of retirement, consider a higher inflation than you are subjected to today so as to provide a margin of safety. Don’t be unrealistic in estimating the growth of your investments. For example, estimating your equity mutual funds to give 14% annual return over the long period is reasonable, but expecting it to return 20% is too optimistic. Be as realistic as possible.

Ratifying your goals and expectations from your advisor…

Once you have identified and defined your goals and also worked out what mutual funds and insurance products to use, you get down to the more difficult task. You need to sit with your financial advisor and ratify these calculations. For example, if you have estimated your investments to grow at 20% per annum for your 5-year home-buying target, there are three things you can ratify. Firstly, if the tenure of 5 years is reasonable or needs to be extended! Secondly, you need to ratify if the monthly saving envisaged by you is sufficient or you require more. Lastly, also see if you need that particular asset only or you can settle for a small value asset that is more realistic.

 Be clear on options available to you and their fit…

When you use mutual funds to plan your future goals, you need to ensure that you look at options that are feasible and their fit into your goals. For example, if you are planning over the next 10 years, a sector fund will not make sense as the risk would be too high. Also, a pure focus on equity mutual funds alone will not help if you require liquidity at regular intervals. A debt or balanced fund will be a better fit. Remember, the biggest risk is not taking risk! At the age of 25, don’t overexpose yourself overtly to debt funds if you have aggressive financial goals. The thumb rule for equity / debt mix is (100 – age). In other words, as you progress in age, your risk capital should fall in tune with your risk appetite.

Get clarity on deliverables from both sides…

This is very important in your relationship with your financial advisor. There should be a clear understanding on the breadth and depth of deliverables from both sides. You need to clarify with the advisor if he will only give advice or give transaction support too. Ideally prefer a combination as you do not need to interact with multiple touch-points. Be clear on whether the advisory has a cost to it, either direct or indirect. You surely do not want last-minute surprises. As an investor looking for a financial plan, you need to furnish the dos and don’ts to your advisor. Also your financial position should be shared with the advisor to the extent possible.

Monitoring and review of your financial plan and investments..

Once the initial relationship with the advisor is established and executed, then the more complex task of monitoring and reviewing your portfolio begins. There could be a variety of triggers. You may be over-exposed to commodities and your financial advisor has a negative view on commodities. You started your plan with one child in mind, but now you have a second child. Your existing business has incurred deep losses and your ability to sustain lofty goals has changed. Medical costs have shot through the roof and your existing plan is inadequate. The colour and intensity of goals may have changed with the passage of time. All these and more could be triggers for a review of your investments and your financial plan.

Remember, mutual funds are an instrument of meeting your financial goals. As mutual funds combine transparency, professional expertise, liquidity and opportunity, they are critical components of any financial plan. But for that, you need to be clear on what to expect from and deliver to your financial advisor. The time to start the process may be now!

For all your mutual fund queries SMS ‘ASKMF‘ to 575758 and we will get back to you.

One thought on “How to get the best from your mutual fund advisor…

  1. You must be extremely transparent regarding your short/ long term financial needs and your current financial situation for your mutual fund advisor to assist you in making the most intelligent investments, which will yield capital appreciation for you. Highly insightful! – 40


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