How do you decide which fund to invest in? The chances are that you pay attention to individual MF schemes offered by a fund house, including SIP investment, equity funds, etc. Here, the assumption is that the fund house to which you transfer the funds will directly invest the sum into your chosen scheme.

However, the working of a mutual fund is more complex than that. Like any other company, a mutual fund house consists of employees at different levels performing different functions.

In this article, we tell you all about a mutual fund house’s structure. We’ll also outline the roles performed by each tier of employees in the fund house. Let’s begin.

What is the organisation structure of mutual funds in India?

SEBI (Securities and Exchange Board of India) is the regulatory body that manages all mutual funds in India. It has mandated a three-tiered structure for any fund house in India. These tiers are as follows –

  1. Sponsor
  2. Trustee
  3. Asset Management Company (AMC)

Each of these tiers has specific responsibilities and has specific eligibility criteria. Let’s take a better look at each of them.

1. Sponsor (or guarantor)

In simple terms, a fund sponsor or the guarantor is anyone who starts a mutual fund. This could be an individual or an individual partnered with another entity (associate company). The primary roles of a fund sponsor include –

  • setting up a mutual fund
  • approaching the SEBI for permissions
  • promoting the associate company handling the fund
  • recruit people to ensure the fund house functions efficiently (appointing the AMC, custodian, transfer agent, auditor, and registrar)

Wondering about the eligibility requirements to become a sponsor? Well, here are the main criteria specified by the SEBI. Keep in mind that these criteria also apply to entities functioning as sponsors.

  • The sponsor must have at least five years of hands-on experience in the financial services and products business, with a net positive Total Worth.
  • The sponsor’s net worth in the previous year should be more than the wealth contributed to setting up the fund house.
  • The sponsor should be able to put in at least 40% of their net worth while setting up the fund house.
  • The sponsor should have good returns in the past three to five years before setting up the fund house.

2. Trustees

After the sponsor creates the trust through a trust deed, the AMC appoints the board of trustees to keep track of the activities of the fund house and preserve the investor’s faith in it. A trustee from the board of trustees could be a member of the board of directors, a bank, or a company approved by the Securities and Exchange Board of India.

Most fund houses appoint a minimum of four trustees to handle operations, or they select a trustee company with no less than four directors to run the fund. Of these, two-thirds will have to be independent. Additionally, the AMC cannot appoint trustees from the same group. This ensures there is no partiality involved during the appointment.

The primary functions of the trustees include:

  • Ensuring the fund house undertakings are compliant with SEBI guidelines
  • Ensuring proper selection of other fund members (AMC, CEO, fund managers, CIO, registrar, etc.) based on their skills
  • Validating schemes published by the fund house
  • Ensuring company worth is as per rules
  • Reporting to the Securities and Exchange Board of India two times a year
  • Ensuring fund house is following compliances
  • Appointing distributors and brokers

And that’s not all. Since the trustees are directly responsible for upholding the trust of investors, their functions also include the following-

  • Requesting information about fund operations, whether SIP investments, equity funds, or other fund types as required.
  • Punishing and initiating strict action if the AMC board members do not comply with Securities and Exchange Board of India regulations or when the interests of the investors are not protected.
  • Dismissing the AMC in case of prolonged non-compliance with policies, etc.

Now that we know about the middle tier of the 3-tier mutual fund structure, it’s time to uncover the final tier- AMCs or Asset Management Companies. Let’s get into it.

3. Asset Management Companies (AMCs)

The Asset Management Company (AMC) or the Fund Management Firm is also the functioning investment manager of the trust. But before that, it needs to get registered with the Government of India.

At present, there are three kinds of AMCs in India:

  1. Private Companies
  2. A Public Limited Co. associated Wholly owned Subsidy
  3. Joint Ventures.

Here are the roles of AMCs:

  • Launch and initiate mutual fund schemes
  • Generate funds with trustees and founders and monitor their development.
  • Manage funds and solicit associate services with bankers, brokers, lawyers, registrars, etc.,

In addition, the government’s supervisory body has mandated a few extra rules to ensure businesses and roles of AMC employees do not clash. These include:

  • AMCs cannot take decisions regarding fund house functions on their own. In most cases, they can provide services like portfolio management, asset management, etc.
  • The AMC cannot nominate a trustee on any mutual fund house they are a part of.

Now that we have covered the basic mutual fund structure, let’s have a quick look at the other employees necessary for the proper functioning of a mutual fund house.

EmployeeRole
Overseer or custodian  They are responsible for the safety of the securities of the mutual fund. They also deliver and transfer fund securities to investors. This means if an investor is looking to upgrade their SIP investment to an equity fund, they can do it with the custodian’s help.
Auditors  The main role of the auditor is checking record books and annual reports and keeping track of the finances of the fund house. Note that every AMC hires an independent auditor for this purpose.
Registrars and transfer agents (RTAs)  The RTAs act as middlemen between the investors and the fund managers. They give fund managers details about investors and tell investors the advantages of investing in the fund.
Brokers, agents, dealers  Like brokers in real estate, these entities bring new investors to fund houses, keep track of market trends, and give recommendations to fund houses.

Over to you

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