Asset Management Companies:Understanding Structure and Roles in Mutual Funds

Establishing an Asset Management Company is a challenging endeavour. Anyone interested in putting one together cannot just snap their fingers and expect to be open for business – there are specifications defined by the Securities and Exchange Board of India (SEBI), which regulates all such companies within India, holding jurisdiction over whether or not to grant a licence.

The process for establishing an AMC is quite strict, and rightfully so. This is due to the sheer amount of public funds at stake. It is necessary that there’s a thorough oversight from regulators to guarantee it is managed responsibly.

To promote openness and responsibility, the Securities & Exchange Board of India (SEBI) has recommended a multi-level arrangement for a Mutual Fund Asset Management Company (AMC). The following is their proposed framework:

– Fund Sponsor

Think of the fund sponsor as the main driver behind the Asset Management Company. A corporate body expresses an intent to set up an AMC and reaches out to SEBI for making it happen. Subsequently, the fund sponsor is obliged to follow a two-part application process, providing all information requested by the regulator. As a result, when stage 1 concludes, SEBI can either deny the licence or grant ‘in principle’ approval.

Once the in-principle approval has been issued, SEBI may require further documents and information for its scrutiny. Subsequently, after careful examination, a decision can be taken by SEBI whether to grant or reject the AMC licence to the fund sponsor.

– Trustees

Once the fund sponsor secures a licence from SEBI, they must appoint a board of trustees for the trust that has been registered. This trust makes sure that AMC, formed by the fund sponsor, does its job correctly and is in accordance with the interests of its clients (unit holders). According to SEBI regulations, the trustee chosen should be completely independent of any affiliation to the sponsor.

– AMC

An AMC is appointed by the trust after consulting with the fund sponsor. It is also referred to as “Investment Manager” and is held responsible for the functioning of various investments under its management in accordance with SEBI’s regulations. Its staff includes Chief Investment Officer (CIO), fund managers, analysts and other personnel engaged in running and overseeing such mutual funds.

The AMC is the backbone of the mutual fund industry; without it, the whole operation wouldn’t run.

Custodian– The AMC now appoints a custodian responsible for conserving all the mutual fund’s shares. The custodian can be considered the guardian of said assets, securely overseeing them.

RTA– The Registrar and Transfer Agent (RTA), appointed by the Asset Management Company (AMC), looks after the clients of a mutual fund, also known as unit holders. Their services include issuing folio numbers, transferring units and other related functions.

The custodian and the RTA are referred to as the “service provider” by AMC.

All the participants in the mutual fund company collaborate to make it successful. You, as an investor, only need to consider two important points:

It is important to ensure that the AMC involved is backed by a reputable sponsor to guarantee credibility.

Making sure the right individual is at the helm of managing the funds is essential. Identifying who this person is a critical component.

Let’s contextualise this information before we finish this chapter.

The aforementioned information belongs to Aditya Birla AMC.

Aditya Birla Capital Limited and Sun Life (India) AMC Investments Inc. are the 2 sponsors here, and they approached SEBI together for an AMC licence. As there are 2 funds, it is a joint venture, and this is how the shareholding is:

The sponsors, after having secured the AMC licence, established Aditya Birla Sun Life AMC Limited as the investment manager or AMC.

The Aditya Birla Sun Life Trustee Private Limited has been set up as a Trustee entity.

This is the information regarding the service provider:

The company has appointed Citi and Deutsche as custodians and CAMS as the RTA. Additionally, there are further details on the bankers and auditors.