Structure of Mutual Funds in India : An Introduction
Mutual fund investors mainly knows the Asset Management Company (AMCs) as investors buys open ended mutual fund schemes from them. There are other parties involves in mutual fund setup so that investors interests are protected. To understand the basic setup of mutual fund in India, let’s look back to the definition of mutual fund from SEBI’s mutual fund regulations, 1996.
As per SEBI-
“Mutual fund means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities including money market instruments or gold or gold related instruments or real estate assets”
Mutual fund means a fund established in the form of a trust, this trust has four main body Trustees, Sponsor, Asset Management Company (AMC) and Custodian. Securities and Exchange Board of India (SEBI) regulates the mutual fund industry to protect the interest of investors. Association of Mutual Funds of India (AMFI) and trustees of said mutual funds keeps an eye on Asset Management Company (AMC).
Asset Management company(AMC) performs day to day operation of the mutual fund schemes. AMC collects monies from the investors to invest in the market as per the scheme objective.
Sponsor: Sponsor is a promoter of the mutual funds, so sponsor needs to make an application to SEBI for registration of mutual fund.
Trustee: Trustees plays a crucial role in the mutual fund setup. Their primary role is to ensure that the mutual fund complies with the regulations and to protect the interest of the unit holders (investors). Before appointing a trustee, Sponsor has to take prior approval from SEBI.
Asset Management Company (AMC): AMC plays key role in the mutual fund setup. AMC handles day-to-day operation of the fund. Appointment of asset Management Company can be made by Sponsor or by the trustees if authorized by the trust deed.
Custodian: As defined in the SEBI mutual fund regulations, 1996, "Custodian" means a person who has been granted a certificate of registration to carry on the business of custodian of securities under the Securities and Exchange Board of India(Custodian of Securities) regulations,1996. So basically custodian keeps custody of securities.
There are other parties also who plays key role in mutual fund operation. Later I will include them in discussion.
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