WHAT IS THE REGULATORY STRUCTURE OF MUTUAL FUND IN INDIA?
• The structure of mutual funds in India is governed by SEBI(Mutual Fund)Regulations, 1996.
• It is mandatory to have a three tier structure of Sponsor-Trustee-Asset Management Company.
• The Sponsor is the promoter and he appoints the Trustees who are responsible to the investors of the fund.
• AMC is the business face of the mutual fund as it manages all the affairs of the fund.
How are Mutual Funds Structured?
• In India Mutual fund is the form of a Public Trust created under the Indian trust Act. 1882.
• The fund sponsor acts as the Settler of trust, contributes the initial capital and appoints the trustees to hold the trust for the benefit of the unit holders.
• In India, Mutual funds are organized as trusts. The trust is either managed by a Board of Trustees, or by a trustee company.
• The trustees hold the unit holders money in a fiduciary capacity.(Money belongs to unit holders)
• In legal sense, the investors are the beneficial owners of investments.
• There must be at least 4 members in the Board of Trustees and at least 2/3 of the members of the board of trustees must be independent.
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Trustee of one mutual fund can not be a trustee of another mutual fund.
Who can be the Sponsor? What does the Sponsor do?
• The sponsor establishes the mutual fund and registers the same with SEBI
• Sponsor appoints the Trustees, custodians and the AMC with prior approval of SEBI and in accordance with SEBI Regulations
• Sponsor must have a 5-year track record of business interest in the financial markets
• Sponsor must have been profit making in at least 3 of the above 5 years.
• Sponsor must contribute at least 40 % of the net worth of the AMC
• Sponsor could be a bank (SBI, PNB, ICICI) a financial institution (Fidelity, Franklin Templeton) or a Corporate (Reliance, Birla, Tata etc.)
Who appoints the AMC and defines its functions?
• The trustees, on the advice of the sponsors usually appoint the AMC
• The AMC is usually a private limited co., in which the sponsors and their associates or JV partners ,are shareholders
• The AMC has to be a SEBI registered entity, with a minimum net worth of Rs. 10 Cr.
• The trustees sign an investment management agreement with the AMC, which spells out the functions of the AMC
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