How do I choose a good mutual fund advisor?

Generally speaking, the advisor is responsible for all statements that he makes to you. He is also obliged to comply with the Code of Conduct for Intermediaries of Mutual Funds published by the Association of Mutual Funds in India (AMFI) as well as the SEBI (Investment Advisers) Regulations, 2013.

These documents lay down much of what you would expect from them, and are focused on ensuring that advisors do not act in a manner inimical to your interest and do not promise returns and other features that cannot be delivered.

If they do, then they can be punished by SEBI or AMFI in a variety of ways, and indeed such actions are often taken against some advisors like penalising them and in some extreme instances revoking their license to sell. That said those who have practical experience of fund investments know that there is always a fine and often blurred line that separates questionable conduct and actual violations.

The fact of the matter is that like many commercial relationships, there are some service providers who are more concerned with short-term gains rather than a long-term customer relationship. It is always tempting, for example, to make over-optimistic projections of how much returns can a fund generate or to use language that implies that such returns are highly certain.

If such promises were made orally and you have no proof of them, then you have no recourse of any kind to challenge the advisor.

As in buying any good or service, the best way to get good service is to be knowledgeable yourself.

Fortunately, this is easier to achieve in investments than in say, medicine or auto repairs! The fact that you are taking the trouble to read these questions and answers, itself puts you ahead of the curve. Apart from knowledge, the other requirement is to have a healthy limit on the very human tendency to be over-optimistic. All investors are optimistic-it goes with the territory-but don't let that lull you into believing wild projections as realistic.

This article was originally published on January 20, 2014.