Defining Asset & AMC
Asset management essentially refers to managing money for individuals through stocks, shares, bonds, securities and cash equivalents among others. Its main objective is to augment fund use and make them as accurate and lucrative as possible. The trustees or the sponsor (or both) chooses an Asset Management Company (AMC), also known as the mutual fund company or the fund house.
Role of an AMC
- Invests the pool of funds in line with the trust deed and the investment objective of the scheme
- Follows risk management guidelines by Association of Mutual Funds in India (AMFI) and Securities and Exchange Board of India (SEBI)
- Provides information that have a direct impact on their holdings to unit holders
- Sends investors regular updates on sales and repurchases, NAV, portfolio details etc.
AMC’s place in the mutual fund structure
To understand the functions of an AMC better, you must know where the AMC stands in the mutual fund structure.
|Sponsor||forms a trust and appoints the board of trustees|
|Trustees||regulate the mutual fund while adhering to SEBI and AMFI|
|Asset Management Company (AMC)||Takes a call on which fund to sell/buy/hold and engages in the buying and selling of securities|
|Custodian||responsible for holding and safeguarding the mutual fund units|
|Registrar and Transfer Agents (RTA)||the record keepers|
These entities work in tandem to create different types of mutual funds that cater to the diverse needs of investors.
History of Asset Management Companies in India
The Government of India and RBI formed the Unit Trust of India (UTI) in 1963 – the advent of the mutual fund industry in India. Later when the Govt permitted public sector banks and institutions to set up mutual funds, the need for an impartial regulator arose. Consequentially, the SEBI Act (1992) was passed, and AMCs were made integral to the mutual fund structure.
SEBI & AMFI regulations for AMCs
An Asset Management Firm acts under the supervision of the board of trustees, answerable to the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI).
While SEBI is a government body, mutual fund companies themselves formed the AMFI. Together, they strive to keep the functioning of the industry ethic-driven and transparent. RBI also plays an important role in regulating AMC, if the sponsors are backed by a bank.
The Ministry of Finance works as the appellate authority for all these regulators. Given below are some of the practices and guidelines that SBI, AMCI and RBI mandates.
- An AMC shall not act as the trustee of any mutual fund
- The company shall not invest in any of its schemes unless full disclosure of its intention to invest has been made in the offer documents
- They shall submit quarterly reports of each year on its activities and the compliance with these regulations to the trustees
- Key personnel of an AMC should have a clean record (not convicted of any economic offense)
- The Chairman of AMC should not be a trustee of any mutual fund
- The AMC should have a net worth of not less than Rs. 10 crores
Are AMCs as reliable as banks?
There is a widespread notion that mutual funds are not as safe as bank accounts or schemes offered by banks. People fear that AMCs can get shut down any time. This is because banks are visible to all and regulated by RBI. But the truth is that mutual fund companies too are under the purview of RBI and finance ministry – just that many are not aware of it.
The sponsor or the trustees appoint an AMC for managing the pool of funds. The AMC charges a fee and acts under the supervision of the trustees, who are in turn regulated by SEBI. The primary reason being that it does not own anything but simply manages the investments on behalf of the trustees. It is high time you invest your money in mutual funds to build long-term wealth while saving on taxes.
Should AMC be a factor in choosing a fund?
While an AMC follows the investment objective of every scheme before investing, you still need to check its vintage and track record. Know all about the team you are trusting your hard-earned money with. Market savvy investors can also look at the performance history of various schemes managed by the company during market ups and downs.