Structure Of Mutual Funds In India :
- Definition: A mutual fund is a trust-based investment vehicle defined by SEBI regulations to raise money via sale of units for investing in securities, gold/silver-related instruments, or real estate.
- Key Characteristics:
- Established as a trust.
- Raises public money through schemes.
- Investments span multiple financial and physical asset categories.
- Legal Framework:
- Governed by SEBI (Mutual Fund) Regulations, 1996 and the Indian Trusts Act, 1882.
- Trust Components:
- Sponsors create the trust.
- Investors (unit-holders) are the beneficiaries.
- Trust Deed governs operations and trustee appointment/change.
- Trustees’ Role:
- Protect investor interests.
- May be individuals (Board of Trustees) or a trustee company (Board of Directors).
- Asset Management Company (AMC):
- Appointed by sponsors/trustees to manage schemes.
- Operates under an investment management agreement.
- Custodian & RTA:
- Custodian holds scheme assets.
- Registrar & Transfer Agent (RTA) or AMC maintains investor records.
Key Constituents Of Mutual Funds :
- Sponsors:
- Apply to SEBI for mutual fund registration and invest in AMC.
- Must have at least 5 years in financial services with positive net worth and profits.
- Required to have ₹10 crore average net profit over the last 5 years.
- Must be “fit and proper” as per SEBI norms.
- Board of Trustees:
- Appointed by sponsors; must be reputable and not involved in economic/securities violations.
- At least 4 trustees required; 2/3 should be independent.
- Responsible for legal compliance, investor protection, and overseeing AMC operations.
- Must conduct regular reviews, file SEBI reports, and perform due diligence.
- Mutual Fund Trust:
- Formed via a registered trust deed under the Indian Registration Act, 1908.
- Asset Management Company (AMC):
- Handles day-to-day operations and investments.
- Must have ₹50 crore net worth (from Jan 2024) and independent directors.
- SEBI/trustee approval needed for director changes or control shifts.
- Responsible for due diligence, investor communication, and regulatory compliance.
- Custodian:
- Manages fund assets, settles transactions, and monitors corporate actions.
- Must be SEBI-registered; appointed via agreement with trustees.
- Must be independent if sponsor controls 50%+ of its voting rights.
Organization Structure Of Asset Management Company :
- Compliance Function:
- Ensures regulatory compliance and legal formalities.
- Compliance Officer signs due-diligence certificates and reports directly to AMC head and trustees.
- Fund Management:
- Core function involving investment decisions.
- Divided into analysts (identify opportunities), fund managers (make investment decisions), and dealers (execute trades).
- Operations and Customer Service:
- Includes front and back office, customer service, RTA (handles transactions and investor records), custody, fund accounting (calculates NAV), and cash management.
- Sales and Marketing:
- Responsible for branding, advertising, and managing distributor relationships.
- Drives investor outreach and supports distributor network development.
- Other Support Functions:
- Include Finance/Accounts (AMC finances), Administration (infrastructure), HRD (talent management), and IT (technical infrastructure and online services).
Role & Support Functions Of Service Providers :
- Fund Accountant: Calculates Net Asset Value (NAV) using scheme asset and liability data; may be in-house or outsourced; SEBI registration not required.
- Registrars and Transfer Agents (RTAs): Maintain investor records, process transactions, and update investment details; SEBI registration required; optional for AMCs to appoint.
- Auditors: Audit scheme accounts separately from AMC accounts; appointed respectively by trustees (for schemes) and AMCs (for themselves).
- Distributors: Sell mutual fund schemes; require NISM certification and AMFI registration; SEBI permits a simplified distributor category with limited product range.
- Collecting Bankers/Payment Aggregators: Handle fund inflow/outflow; include traditional banks and digital platforms like wallets and payment gateways.
- KYC Registration Agencies (KRAs): Centralize investor KYC process to avoid repetition; SEBI-registered, must maintain data security and interconnectivity.
- Valuation Agencies: Provide fair value matrices for non-traded debt securities; AMCs must use these; CRISIL and ICRA appointed by AMFI.
- Credit Rating Agencies: Assess credit risk of securities; vital for investment decisions in debt funds and schemes like FMPs and capital protection-oriented funds.
- Depositories and DPs: Hold mutual fund units in demat form; NSDL and CDSL are key players; ETFs must be held in demat.
- Stock Exchanges & Platforms: Facilitate mutual fund transactions (e.g., BSE-Star MF, NSE NMF-II, MF Utilities); Execution Only Platforms (EOPs) enable digital transactions in direct plans, needing SEBI or AMFI registration.
Role & Function of AMFI :
- AMFI (Association of Mutual Funds in India) is an association of all registered Asset Management Companies (AMCs) in India.
- Objectives include promoting ethical standards, best practices, and a code of conduct in the mutual fund industry.
- Acts as a representative to SEBI, the government, RBI, and other authorities on matters related to mutual funds.
- Conducts investor awareness programs and promotes understanding of mutual fund operations.
- Disseminates information and undertakes research related to the mutual fund industry.
- Regulates mutual fund distributors, including registration via AMFI Registration Number (ARN) and disciplinary actions.
- AMFI is not a regulatory body or SRO, but plays a key advisory and facilitative role.