Asset Management Company and other Constituents of Mutual Funds!

or omissions by its employees or the persons whose services have been procured by the
asset management company, the asset management company shall be responsible for
The asset management company carries out the business of the mutual fund. The asset
those acts.
management company shall not undertake any other business activities except activities
in the nature of [portfolio management services] management and advisory services to It is required to submit to the trustees, quarterly reports of each year on its activities and
offshore funds, pension funds, provident funds, venture capital funds, management of the compliance with these regulations. It should file with the trustees, the details of
insurance funds, financial consultancy and exchange of research on commercial basis, if transactions in securities by the key personnel of the asset management company in their
any of such activities are not in conflict with the activities of the mutual fund. own name or on behalf of the asset management company and shall also report to the
SEBI as and when required by the SEBI.
75% of the Unit holders jointly can Terminate Appointment of AMC
To keep an arms-length relationship between the various constituents of the mutual fund,
The asset management company is appointed by the sponsor or if so authorized by the
the asset management company should not utilize the services of the sponsor or any of its
trust deed, the trustee. The appointment of an asset management company can be
associates, employees or their relatives, for the purpose of any securities transaction and
terminated by majority of the trustees or by seventy five per cent of the unit holders of the
distribution and sale of securities.
scheme.
The asset management company should file with the trustees and the Securities and
At Least 50% Independent Directors
Exchange Board of India:
Eligibility Criteria for Appointment of Asset Management Company:
i. Detailed bio-data of all its directors along with their interest in other companies within
The asset management company should have directors having adequate professional
fifteen days of their appointment;
experience in finance and financial services related field and not found guilty of moral
turpitude or convicted of any economic offence or violation of any securities laws. Its key ii. Any change in the interests of directors every six months; and
personal should have not been found guilty of moral turpitude or convicted of economic
iii. A quarterly report to the trustees giving details and adequate justification about the
offence or violation of securities laws.
purchase and sale of the securities of the group companies of the sponsor or the asset
The board of directors of such asset management company should have at least fifty per management company as the case may be, by the mutual fund during the staid quarter.
cent directors, who are not associate of or associated in any manner with the sponsor or
The asset management company should abide by the Code of Conduct as specified in the
any of its subsidiaries or the trustees.
Regulation.
The chairman of the asset management company should not be a trustee of any mutual
Asset Management Fee
fund. Finally, the asset management company should have a net worth of not less than
rupees ten crores. For carrying out asset management activities, AMC charges fee to the schemes it
manages, within the ceiling prescribed under regulations.
AMC Responsible for the Acts of its Employees
A Bank or a Company Whose Primary Responsibility is Safeguarding the Funds Assets
Obligations of Asset Management Company:
The asset management company should take all reasonable steps and exercise due Custodian:
diligence to ensure that the investment of funds pertaining to any scheme is not contrary The mutual fund shall appoint a custodian to hold the funds securities in safekeeping,
to the provisions of these regulations and the trust deed. settle securities transactions for the fund, collect interest and dividends paid on securities,
and record information on stock splits and other corporate actions.
It should exercise due diligence and care in all its investment decisions as would be
exercised by other persons engaged in the same business. In case of acts of commissions No custodian in which the sponsor or its associates hold 50% or more of the voting rights
of the share capital of the custodian or where 50% or more of the directors of the companies and other distribution companies. Individuals constitute the agency force.
custodian represent the interest of the sponsor or its associates shall act as custodian for a AMC earns a fee for managing the funds of the investors. The fee is defined as a % of the
mutual fund constituted by the same sponsor or any of its associate or subsidiary funds managed by the asset management company. The fee is charged to the scheme
company. within the ceiling prescribed by SEBI.

The table below gives the list of banks/companies that provide custodial services to the
mutual funds.
Custodian:
1 HDFC Bank
2 SHCIL
3 Citi Bank
4 Deutsche Bank
A Company Tracking the Daily Purchase and Sale of Mutual Fund Units
Registrar and transfer agent:
R&TA maintains record of the unit holders account. A fund may choose to hire an
independent third party who is registered with the SEBI to provide such services or carry
out these activities in house. If the work relating to the transfer of units is processed in-
house, the charges at competitive market rates may be debited to the scheme.
The registrar and transfer agent forms the most vital interface between the unit holders
and mutual fund. Most of the communication between these two parties takes place
through registrar and transfer agent.
In this topic we have discussed the organizational structure of mutual funds in USA and
UK. In USA, mutual funds are externally managed in the sense that the mutual fund
outsources most of its activities from third parties to carry out its business activity of
investing funds in securities. In UK, the open-ended structure known as unit trusts and the
close-ended structure is known as investment trusts. We have discussed the important
distinctions between these two forms.
In India, the structure of mutual fund is given by SEBI (Mutual Fund) Regulations. As per
these regulations, mutual funds are required to have a three-tier structure of sponsor-
trustees-AMC.
The mutual fund, which is the trust, acts through a trust company or a board of trustees.
In this topic, we have discussed in detail, the qualifications, obligations and rights of
trustees. The AMC is the face of the mutual fund. We have discussed the obligations of
AMC.
SEBI Regulations require for appointment of independent custodian. We have discussed
the role of custodian and the qualifications, which constitute independence in this context.
There are other functionaries which provide support to the fund viz. R&TA and
distributors. We have discussed their role in mutual fund structure.

R&TA

1 CAMS

2 Karvy

M/s IIT Corporate Services do not provide custodian services now.

M/s MN Dastoor & Co., IIT Corporate Services, Computeronics, MCS Software Solution
Ltd., PCS Industries Ltd., Tata Share Registry do not provide R&TA services to mutual
funds now.

Distributors/agents:
To send their products across the length and breadth of the country, mutual funds take the
services of distributors/agents. Distributors comprise of banks, non-banking financial