What is Asset Management Company and how it works
Asset Management Companies are SEBI registered entities which manages the assets of mutual funds. Bur before, we discuss what is an Asset Management Company let us read what is mutual funds in India
What is an Asset Management Company?
You must know the function of follow entities in order to understand what an AMC is and how it works in India?
Sponsor – Sponsor is the promoter of the mutual fund and forms a trust and appoints the board of trustees.
Trustees – Regulates the mutual fund and ensure that guidelines are followed and works in the interest of the investor.
Asset Management Company (AMC) – Manages the mutual funds schemes by appointing fund managers.
Custodian – Responsible for holding and safeguarding securities owned by mutual funds.
Registrar and Transfer Agents (RTA) – Maintains the records of all schemes held by the investors and does the accounting and servicing.
All the above entities work in tandem to create different types of mutual funds to cater to various needs of the investors.
Sponsor of a mutual fund
Sponsor of a mutual fund is no one but the promoter of the mutual fund. For example, ICICI Bank Ltd is the sponsor of ICICI Prudential Mutual Fund. The sponsor makes an application with SEBI to register the mutual fund and provides the adequate capital for setting up the mutual fund. In India, the Mutual Funds are set up as a Trust. SEBI requires a sponsor to have at least 5 years track record in financial services business like, bank, financial institutions, insurance company, investment banking or securities broking etc.Post SEBI’s approval the sponsor appoints a board of trustees to ensure full compliance of the mutual fund with SEBI’s requirements.
Trustee and its role
The trustees do not manage the assets of mutual funds directly instead it enters into an investment management agreement with the AMC to define its functioning. Trustees are also responsible for ensuring that the AMC has all the required process, procedures and systems in place while making sure that all the key personnel such as the CEO, CIO and the fund management team is competent and appointed after thorough due diligence.
The main role of the trustee is to ensure protection of investor interest while making sure that the mutual fund complies with all the regulations. The trustees appoint a custodian for safe-keeping of scheme assets. All the schemes launched by the AMC have to be approved by the trustees prior to launch. The trustees review the working of the AMC on a quarterly basis and files reports to SEBI on a half yearly basis.
At least two thirds of the trustees or the directors should be independent and not associated with the sponsor in any way.
Asset Management Company (AMC)
An Asset Management Company (AMC) is essentially the mutual fund company, which is appointed by the sponsor or the trustees after obtaining approval from SEBI.
The AMC consists of the Chief Investment Officer (CIO), the fund managers and market analysts, who are together responsible for managing the various schemes launched by AMC. The compliance Manager ensures compliance of all the activities of the AMC in line with SEBIs rules and regulations.
The AMC invests the funds collected by its mutual fund schemes in shares and securities as specified by the investment objective of each scheme. It provides information to unit holders about the portfolio holding of the schemes, regular updates on sale and repurchase, Net Asset Values (NAV), change in key personnel or the scheme nature, etc.
Who is a Custodian
The custodian is responsible for the safe keeping of all the securities (shares and various other securities) bought by the AMC. They are also liable for keeping the investment account of the mutual fund.
Registrar and Transfer Agents (RTA)
The RTA maintains and updates all the investor’s records on a daily basis and services the investors through its physical branches, touch points and also through online. The RTA function includes processing of investor applications; execute purchase and redemption transactions by investors in various schemes.
Currently there are 4 RTAs in India –
History of AMCs in India
In 1963, at the initiative of the Government of India and Reserve Bank of India (RBI), the Unit Trust of India (UTI) was formed which was the advent of the mutual fund industry in India. It was established in 1963 by an Act of Parliament and was set up by the RBI and functioned under the Regulatory and administrative control of the RBI. In the late 1980s, when the Government of India permitted public sector banks and institutions to set up mutual funds, the need for a regulator was born and thus in 1992, the SEBI Act was passed and AMCs were made integral to the structure of a mutual fund. Since then a number of AMCs have started operations across the country and currently we have over 40 AMCs in India.
Thus we can say that the mutual funds in India are a well regulated entity with clearly defined structure comprising of several components whose roles and responsibilities are properly defined under the preview of SEBI.