ARN in mutual funds: All you need to know

The Association of Mutual Funds in India (AMFI) plays a pivotal role in establishing ethical and transparent policies for the Indian mutual fund industry. It has made a significant contribution to protecting the interests of investors and fund houses during the previous two decades. They have increased investment accessibility and transparency to attract more people to invest in mutual funds and join the mutual fund industry.

That said, mutual funds are sold by only qualified mutual fund experts and distributors who have an AMFI registration number or ARN code. Furthermore, it was good news for the industry to augment the industry when AMFI decided to reduce ARN Registration & Renewal Fees for mutual fund distributors by 50%, effective from May 1, 2021.

AMFI wants to encourage new and young individuals around the country to reach out to a sizable base of small savers, particularly in Tier II and III cities and towns, and encourage them to invest their financial assets in mutual funds. “Rising affinity for Mutual Fund asset class would get a strong fillip with this reduction in the ARN registration and renewal fees for the distributor fraternity,” said N.S. Venkatesh, Chief Executive of AMFI, in its circular.

Mutual fund plans

There are two types of plans, i.e., a regular plan and a direct plan. Regular plans are mutual fund plans purchased through an intermediary. Brokers, consultants, and distributors are all examples of intermediaries. The intermediaries’ charges fund houses the intermediaries a fee for selling their mutual funds. The year 2012 was the year of impact when Sebi introduced direct plans in mutual funds.

This was done to enable investors to purchase mutual funds directly from the fund manager. The same mutual fund manager manages both the direct and regular plans. They, too, invest in the same assets. However, the primary distinction is that the fund house charges a distribution fee in the form of commission in a regular plan. In contrast, there is no such commission or fee in the direct plan.

Regular plan

Today investors are aware of all the benefits which a direct plan provides. This includes low cost, no involvement of the third party, and the low expense ratio, amongst other things. However, the regular plan has its advantage, which investors still follow, especially if they lack financial knowledge. The professional advice received from the advisors can aid investors in selecting a correct mutual fund as per their risk appetite.

A knowledgeable advisor can assist investors throughout their financial journey and even impart market information to help them achieve higher returns. Thus, only a regular plan provides for professional guidance. In a direct plan, however, the investor must rely on their knowledge.

Points you should know

-For individuals considering investing in mutual funds, becoming familiar with the ARN is critical. Given the critical role that agents, brokers, and other intermediaries play in attracting new investors to the Mutual Fund market, it is critical for investors to understand their trustworthiness.

-ARN is the most straightforward way to educate yourself about this financial sector. AMFI India authorises only qualified individuals to market funds to prospective purchasers.

-Fund houses or intermediaries that obtain the ARN are knowledgeable about the numerous types of Mutual Funds, various market trends, and any other professional information necessary to invest profitably in the market.

-Thus, investors are usually recommended to check the ARN of fund houses before investing in Mutual Funds to guarantee that they are genuine.