MF Mod 1 P1

Mutual Fund: Concept
A mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose
of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money
managers, who allocate the fund's investments and attempt to produce capital gains and/or income for the fund's investors. A mutual
fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Mutual funds give small or individual
investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates
proportionally in the gains or losses of the fund. Mutual funds invest in a wide amount of securities, and performance is usually tracked as the
change in the total market cap of the fund, derived by aggregating performance of the underlying investments. Mutual fund units, or shares, can
typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.
A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.
Mutual fund structure in India
We have seen many aspects of mutual funds, whether it was about their performance, portfolio, how to choose them and how to compare them.
In this post, we will see the structure of mutual funds in India. Mutual funds in India are regulated by the Securities and Exchange Board of India
(SEBI). As running of a mutual fund involves managing of investors’ money, SEBI prescribes a complete set of guidelines for operating the
mutual fund (MF) through the “SEBI MF regulations 1996”. These regulations designate that a mutual fund must be a three-tiered structure
consisting of:
--A Sponsor
--A Trustee
--An asset management company (AMC)
While the above-mentioned play the most vital roles in creating and running a fund house, registrar and transfer agent (RTA), the custodian, the
auditors and the fund accountants play an important supporting role in helping the smooth functioning of the mutual fund.
Sponsor – The Sponsor is the main body that establishes the Mutual Funds. The Sponsor can be correlated to a promoter of a company. The
duty of the sponsor involves appointing the trustees with the consent of SEBI and setting up an Asset Management Company under the
Companies Act 1956 while making the trust registered with SEBI. As the Sponsors play the most vital role in the functioning of a mutual fund,
SEBI has a set of stringent guidelines for the eligibility of a sponsor. Some of them are as follows: the sponsor should have a good track record
of conducting business in the financial services field for not less than 5-7 years. A Sponsor also needs to have made profits in at least 3 of the 5
years including the latest year. During the same period, it is also essential that the sponsor has had a positive net value. It should be
contributing at least of 40 percent net worth of the AMC. It is also important that the sponsor has a good track record of fairness and integrity in
all its transactions. For example, ICICI Bank and Prudential Plc is sponsors for ICICI Mutual Fund. For Birla Sun Life Mutual Fund, Aditya Birla
Financial Services and Sun Life (India) AMC Investments Inc. are sponsors.
Trustee – In the structure of mutual funds, the foremost role of a trustee is to secure that the interest of the unit holders is shielded while making
sure that the mutual fund complies with all the regulations of SEBI. Either, the sponsor
should select four trustees or establish a trustee company with at least four independent
directors. Additionally, at least two-thirds of the trustees or the directors should be
independent not associated with the sponsor in any way. Some of the important
responsibilities of the trustees involve entering into an investment management contract
with the AMC to define its functioning. Trustees are also accountable for ensuring that the
AMC has all the necessary procedures, processes, and systems in place while ensuring
that all the key persons such as the CIO, CEO, the fund managers and the analysts are
selected after the due care. All the schemes launched by the AMC have to be approved by the trustees before launch. The trustees also review
all the transactions of the AMC on a quarterly basis whilst filing reports to SEBI, generally on a half yearly basis.
Asset Management Company (AMC) – AMC’s are the investment manager of the trust. They take care of the everyday operation of the mutual
fund and managing the investor’s money as well. The AMC is appointed either by the Sponsor or the Trustee after getting the approval of SEBI.
The Asset Management Company consists of the Chief Investment Officer, analytics, and the fund managers, who are together responsible for
managing the different schemes started. The compliance officer makes sure compliance of all the actions of the AMC are in line with SEBIs laws
and regulations. For example; Axis AMC is the Asset Management Company for Axis Mutual Fund.
Custodian – He has the custody of the all the shares and numerous other securities purchased by the AMC. The custodian is responsible for
safe custody of all the securities. The custodian is accountable for managing the investment account of the mutual fund.
Registrar and Transfer Agent (RTA) – It maintains and updates all the investor’s records. The primary function is investor servicing through its
office and many other branches. Its functions involve processing of investor application, purchase and redemption transaction history by
investors in different fund schemes and plans.
Auditors – The auditors are responsible for the auditing of the AMC’s accounts while assuring that the accounts of schemes are maintained
autonomously from that of AMC. The fund accountants are liable for calculating the NAV of the schemes based on the information about the
assets and liabilities of every scheme.
Asset Management Company - AMC

An asset management company (AMC) is a company that invests its clients' pooled funds into securities that match declared financial
objectives. Asset management companies provide investors with more diversification and investing options than they would have by
themselves. AMCs manage mutual funds, hedge funds and pension plans, and these companies earn income by charging service fees or
commissions to their clients. AMCs offer their clients diversification because they have a larger pool of resources than the individual investor
could access on his own. Pooling assets together and paying out proportional returns allow investors to avoid minimum
investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with
a smaller investment.
How Do AMCs Work?
Typically, AMCs are considered buy-side firms. This simply refers to the fact that they help their clients invest money or buy securities. They
decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms. Sell-side
firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal
of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction
fees.
New Fund Offer - NFO
A new fund offer (NFO) is the first subscription offering for any new fund offered by an investment company. A new fund offer occurs when
a fund is launched, allowing the firm to raise capital for purchasing securities. Mutual funds are one of the most common new fund offerings
marketed by an investment company. The initial purchasing offer for a new fund varies by the fund’s structuring. A new fund offer is similar to
an initial public offering. Both represent attempts to raise capital to further operations. New fund offers can be accompanied by
aggressive marketing campaigns, created to entice investors to purchase units in the fund. New fund offers often have potential for significant
gains after beginning to trade publicly. Mutual funds are the most common type of new fund offering. New fund offerings can be for open-end or
closed-end mutual funds. New exchange traded funds are also first offered through a new fund offering.
Rights and obligations of investors

Investor Rights - Right To
 Get Unique Client Code (UCC) allotted  Understand the voluntary conditions being agreed with the member
 Get a copy of KYC and other documents executed  Understand the rights given to the Members
 Get trades executed in only his/her UCC  Read Risk Disclosure Document
 Place order on meeting the norms agreed to with the Member  Understand the product and operational framework and
 Get best price deadlines
 Contract note for trades executed  Pay margins
 Details of charges levied  Pay funds and securities for settlement on time
 Receive funds and securities on time  Verify details of trades
 Receive statement of accounts from trading member  Verify bank account and DP account for funds and securities
 Ask for settlement of accounts movement
 Investor Obligations - Under Obligation To  Review contract notes and statement of account
 Possess a valid contract or purchase/sale note.  Rights to Remedies
 Deliver securities with valid documents and proper signatures  Take up a complaint against member with the Exchange
 Execute Know Your Client (KYC) documents and provide  Take up a complaint against listed company
supporting documents  File arbitration against member if there is dispute
 Challenge the arbitration award before court of law  Complaint to be supported by appropriate documents
 Obligation Towards Remedies  When additional information is called for provide the same
 Take up complaint within reasonable time  To participate in resolution meetings

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Mutual Fund: Concept

Asset Management Company - AMC

Rights and obligations of investors

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