The above diagram gives an idea on the structure of an Indian mutual fund.
Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund shareholders. The pooled money is invested in the securities. Sponsor appoints trustees.
Trustees: Two third of the trustees are independent professionals who own the fund and supervises the activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI.
AMC: Asset Management Company (AMC) is a set of financial professionals who manage the fund. It takes decisions on when and where to invest the money. It doesn’t own the money. AMC is only a fee-for-service provider.
The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud.
Custodian: A Custodian keeps safe custody of the investments (related documents of securities invested). A custodian should be a registered entity with SEBI. If the promoter holds 50% voting rights in the custodian company it can’t be appointed as custodian for the fund. This is to avoid influence of the promoter on the custodian. It may also provide fund accounting services and transfer agent services. JP Morgan Chase is one of the leading custodians.
Transfer Agents: Transfer Agent Company interfaces with the customers, issue a fund’s units, help investors while redeeming units. Provides balance statements and fund performance fact sheets to the investors. CAMS is a leading Transfer Agent in India.
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Sathish Emmadi
Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.
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{ 4 comments… read them below or add one }
Satish,
I want to set up a AMC in Nepal. have Investors.Have already gone through the guideline of regulator, already made the marketing plan. Need your input that how do i proceed further, I meant to say the structure of the company, cost management and all. Can you help me out.
Hi Sandeep,
Honestly, I don’t have any experience in these things. I know many technical details/functioning of mutual funds etc. But running a company is a different story
It would be a good idea to take help from a guy who worked in an AMC in that sort of a role. I am into technical side of a MF.
Hope you will succeed. All the best!
Sandeep , would suggest that you look at Govt Regulations (in terms of requirements of a AMC) and Structure mandates as part of setting up AMC in Nepal & Investors in terms of cross border currency,etc
Most AMC’s have a basic networth regulations and shareholding pattern structure , outlined by local regulators.
Another option would to be approach a MF consultant with experience in the India/APAC region.
IT is really interesting n i have benefitted with it THANK UUUUUUUU