Mutual Funds constituted by banks and investment institutions have been working in India since 1987. They can be operated by an established Asset Management Company (AMC). They have acted as a forerunner for the overall growth and stability of the capital market. For smooth functioning, better efficiency, transparency and investor affability, the Government issues a certain set of guidelines for these entities. The Securities and Exchange Board of India (Sebi) is the statutory legal body that issues the authorization to mutual funds to do business. All mutual funds need to accept the guidelines set by Sebi and any defiance of the rules attracts penalties by Sebi.
Mutual
funds form a considerable source of investment in government as well as corporate
securities. UTI, the largest mutual fund was started by the Government of India
in 1964. It promoted small investors in the equity market. Later, with the substantial
increase in mutual fund participants, a non-profit organization called Association
of Mutual Funds in India (AMFI) was formed on August 22, 1995. It works under
the control and guidelines of its Board of Directors.
The
guidelines are applicable to all mutual funds that invest primarily in the capital
market and partly in money market instruments. The Reserve Bank of India (RBI)
regulates the money market mutual fund that invests solely in money market instruments.
But Sebi regulates the money market scheme of added mutual funds. The Department
of Economic Affairs, Ministry of Finance and the directives from RBI/Government
manage the mutual funds that deal with offshore funds having the components of
non-resident investors.
To
set up a mutual fund house, a sponsorship is required by a registered company
with good track record in the form of a trust under the Indian Trusts Act. The
trust is allowed to propose different schemes. Unlike the AMC, a trust is a different
legal body. An AMC cannot act as the trustee nor is it allowed to carry out other
business activities such as financial services consultancy, swapping of research
and analysis which are not at par with the fund management activities. |
