SEBI regulation is being defined as the structure of mutual funds in India. These SEBI regulations need a fund to be recognized in the form of a trust under the Indian Trust Act, 1882. A mutual fund is mostly externally controlled and operated.
2. Mutual Fund Structure in India
A mutual fund is set up in a form of a trust, which has a sponsor, trustees, asset management company, and a custodian. It is regulated by SEBI and follows the guidelines of AMFI (Association of Mutual Funds in India).
a. Sponsors: Sponsors establish trust; they are like the promoters of any company. The responsibility of the sponsor includes appointing the trustees with the approval of SEBI and setting up an AMC. Example: ICICI Bank and Prudential Plc are sponsors for ICICI Mutual Fund. Moreover, the sponsor is anticipated to contribute at least 40% to the net worth of the AMC.
b. Trustees: Board of Trustees/ board of directors who track the performance and maintain compliance with the rules stipulated by SEBI. They ensure the interest of the unitholders is protected. The sponsor is responsible for either selecting four trustees or creating a trustee company having a minimum of four independent directors. At least two-thirds of the trustees or the directors should be independent not associated with the sponsor in any way. The trustee is responsible for getting into an investment management agreement with the AMC to describe its operation. They are also liable to appoint CIO, CEO, and fund manager. Trustees approve all the schemes of AMC before being launched. Example: ICICI Prudential Trust Limited is the company that acts as a Trustee for ICICI Mutual Fund.
c. Asset Management Company (AMC): AMC or Mutual Fund house is the company responsible to manage the assets of the Mutual Funds and taking care of its day-to-day operation. The AMC consists of the Chief Investment Officer, the fund managers, and analysts, who are together responsible for managing the various schemes launched. This person looks out on the daily operation of the mutual fund and dealing with the investor’s money. ICICI Prudential Asset Management Company Ltd is the AMC of ICICI Mutual Fund.
d. Custodian: Custodian is registered with SEBI and has custody of all the shares and various other securities bought by the AMC. The custodian is responsible for the safekeeping of all the securities. Most the mutual funds use banks' custodians. HDFC Bank is the Custodian of ICICI Prudential Mutual Fund.
e. Registrar & Transfer Agents (RTA): The AMC appoints the registrar and transfer agent to the mutual fund. The registrar processes the application form, redemption requests and dispatches account statements to the unitholders. The registrar and transfer agent also handle communication with investors and updates investor records. Registrar of ICICI Mutual Fund is CAMS.
f. Regulator (SEBI): The Securities and Exchange Board of India (SEBI) is the primary regulator of mutual funds in India. SEBI’s Regulations called the SEBI (Mutual Funds) Regulations, 1996, along with amendments made from time to time, govern the setting up a mutual fund and its structure, launching a scheme, creating and managing the portfolio, investor protection, investor services and roles and responsibilities of the constituents
The Association of Mutual Funds in India (AMFI) is the industry body that oversees the functioning of the industry and recommends best practices to be followed by the industry members. It also represents the industry’s requirements to the regulator, government and other stakeholders.