2. Fund Structure and constituents.
Legal Structure (1)
Mutual Fund: Fund established in the form of a trust to raise money
through sale of units to the public under one or more schemes
investing securities including money market instruments or gold or
gold related instruments or real estate assets [SEBI (Mutual Fund)
Regulations – 1996]
Key features: established as trust, raises money by selling units
under one or more schemes & invests in securities (Includes : gold/
gold related instruments/ real estate)
Legal Structure:
Governed by Indian Trust Act since constituted as a Trust.
Beneficiaries of the trust are investors.
Operations are governed by a Trust Deed (executed between
sponsors and the trustees) – various clauses are laid down by SEBI.
Legal Structure (2)
Role of protecting interest of investors is that of Trustees.
Trustees may be individual or a Trust company Asset Management
Company (AMC): appointed by Trustees, manages day today affairs.
Investment management agreement setting out the responsibilities is
executed by trustees with AMC
Custodian of assets (securities, gold etc.) is appointed by Trustees
Record of investor and their holdings may be with AMC or Registrar &
Transfer Agents.
Sponsors
Sponsors submits application for registration to SEBI.
Invests in capital of AMC & are the main people behind MF
operations.
Eligibility criteria:
Carrying business in financial services for 5 years
Have positive net worth for each of the 5 years
Latest net worth more than the contribution to capital of AMC
Earned profit in 3 of the 5 years ( including the lasted year )
Fit & Proper person for this kind of operations
Needs to have a minimum of 40% share holding in AMC (those
who have more than 40% share holdings are considered as
sponsors and fulfill the eligibility criteria ]
Trustee
Critical role: ensure that MF complies with all the regulations
Protect interest of investors
Perform various kind of General and Specific Due Diligence
SEBI Regulations: Every Trustee must be a person of ability, integrity
& standing and a person guilty of moral turpitude, convicted for any
economic offence or securities laws cannot be appointed as trustees.
Prior approval of SEBI before appointment
Sponsor has to appoint a minimum of 4 trustees
If trustee company is appointed – minimum of 4 board of directors
Minimum of two –third of trustees/ board of trustee company to be
independent directors (not associated with the sponsors)
AMC
Arranges office/infrastructure, staff , software, advertisement &
selling, interacts with regulators and service providers.
Ensures schemes do not in contradict of regulations and trust deed.
SEBI:
Directors to have adequate professional experience in finance
and financial services related field
Directors &Key personnel not found guilty of moral turpitude/
convicted of any economic offence or securities laws
Key personnel should not have worked for any AMC/MF/
intermediary during the period its registration was suspended/
cancelled by SEBI.
Prior approval of trustee for appointing a director in AMC
At least 50% of directors should be independent.
Minimum net worth of AMC : Rs 10 crore
Appointment of AMC can be terminated by majority of trustees or
75% of unit holders. Change in AMC requires approval of SEBI &
Unit holders.
No fee for its investments in schemes managed by the AMC
AMC - Operations
Headed by Managing Director, Executive Director or CEO (Chief
Executive Officer)
Other Business Heads:
Designation Key Functions/Responsibilities
Overall investments. Assisted by fund
CIO – Chief Investment Officer managers - FM (each scheme requires FM & a
FM can manage multiple schemes )
Security Analysts Supports FM through research reports
Security Dealers Helps in putting through transactions in market.
Mobilizing money. Direct sales team, Channel
CMO- Chief Marketing Officer managers, Advertisement & Sales team
supports CMO
COO: Chief Operational Officer Operational issues
Legal compliance. Due Diligence Certificate in
Compliance Officer offer documents. Reports directly to head of
AMC. Works closely with trustees on regulatory
and compliance issues.
Recurring Expensed limits
Annual limits fixed by SEBI (including management fees ) –
other than Index Scheme. (on average net asset value)
Net Assets ( Rs. In crores ) Equity ( %) Debt (%)
Upto 100 2.5 2.25
Next 300 2.25 2.00
Next 300 2.00 1.75
Excess over 700 1.75 1.50
Limit for Investment management fees (within above ) charged by AMC
First Rs. 100 crores of net assets 1.25%
On the balance amount 1.00%
No management fee by liquid and debt schemes on the funds parked
in term deposits of banks
Other Service providers
SEBI Registration required. Appointed by MF. Agreement
entered with trustees. Custody of the assets of MF for the
Custodian benefit of investors, Settles transactions, tracks corporate
actions - dividends, bonus etc. [SEBI : if sponsor of its
associates controls 50% or more of the shares of custodian
Or 50% or more directors represents sponsor or its
associates – custodian cannot be appointed ]
Appointed by AMC. Requires SEBI Registration. Maintains
RTA investors record, serve as Investors Service Centers (ISC). AMC
can handle activities in house – RTA is not compulsory.
Auditors Scheme auditors appointed by trustees , AMC auditor by AMC.
Different auditors for schemes and AMC.
Fund Calculating NAV. AMC can handle or engage a service provider
Accountant (SEBI registration NOT required).
Distributors Required to pass prescribed certification. Register with AMFI.
Collecting Investors money goes into bank account.Accepting application,
bankers payments, collections etc.
KYC Registration Agencies.
Doing away with multiple KYC formalities with various
intermediaries.
SEBI : Unified KYC for the securities market through KYC
Registration Agencies (KRA) registered with SEBI.
New investor has to comply with KYC formalities
In-Person Verification (IPV) by SEBI registered intermediary
compulsory.
IPV to be done by only one registered intermediary (broker,
depository, MF, distributor etc.) and IPV will be valid with other
SEBI registered intermediaries.
Distributors having valid NISM Series V A : Mutual Fund
Distributors certificate and valid ARN can carry out IPV, if they have
completed KYD process.
