Mutual Fund Structure and Constituents
Although we have previously touched upon the structure of a mutual fund, in this chapter, we will be studying them in more detail and discussing their different constituents.
How is a Mutual Fund formed?
The creation of a mutual fund involves the following authorities-
The sponsors are the persons or the groups of persons who come up with the idea of the mutual fund.They are the ones who will establish the fund and ask SEBI for its approval.
After SEBI’s approval, the sponsors form the public trust.The trustees of the scheme are placed to ensure that the funds of the investors are being managed properly, in line with the objectives of the scheme.
The Asset Management Company (AMC)
The trustees appoint the AMC for their mutual fund. This AMC ensures that all the processes related to investment are carried out smoothly.
Key Personnel of an AMC
The key personnel of an entity are those people who have the authority to plan and direct the activities of the entity.
Apart from knowing your fund manager, it is important to understand these designations of the AMC as well -
- Chief Executive Officer (CEO)
- Chief Operating Officer (COO)
- Chief Executive Officer (CEO) Head- Sales
- Head- Fixed Income
- Fund Manager- Equity
- Fund Manager- Debt
- Head- Compliance
- Investor Relations Officer
The divisions within an AMC are made on the basis of which segment of the market the fund market handles.Under each fund manager, there are analysts and other professionals who assist the fund manager with the smooth functioning of the mutual fund schemes.
Which authorities regulate the Mutual Fund industry?
There are two regulatory bodies which oversee the functioning of the mutual fund industry-
Securities Exchange Board of India (SEBI)
SEBI regulates the mutual funds as a separate segment of the stock market. It builds the rules and regulations for all AMCs and the basic functioning of all mutual funds in the country
Association of Mutual Funds in India (AMFI)
AMFI is an industry-standard organization for all mutual funds of the country. It is a not-for-profit organization that aims to spread investor awareness about the mutual funds industry.
What are the objectives of AMFI?
Given below are some of the objectives that AMFI has been set up for with the following objectives -
- To outline the ethical and uniform professional standards for every mutual fund operating under the association;
- To encourage its members and investors to maintain ethical business practices and regulations;
- To get AMCs, agents, distributors, advisories and other bodies involved in the capital market to comply with their guidelines;
- To help investors to air their grievances and register complaints against a fund manager or the fund house;
- To distribute information on Mutual Fund Sector and conduct research and workshops on various funds; and
- To spread awareness about the regulations regarding safe mutual fund investments throughout the country.