AMCs are SEBI registered entities which manages the assets of mutual funds. In order to understand the working of an AMC, let us first discuss how mutual funds work.
The AMC full form in mutual fund is Asset Management Company. AMCs are formed as trust in India.
AMCs are firms that pools money from various investors for investing in various securities. The AMC invests the money so collected in various securities like stocks, bonds, Government securities and commodities, etc. The various securities are selected keeping in mind the investment objective of the fund.
The AMC or Asset Management Company appoints fund manager/s to manage each scheme on an ongoing basis, to ensure that the scheme investment objectives are met. The fund managers appointed by the AMCs are professionally qualified people who will have the requisite investment expertise and experience to manage the assets of the scheme. AMCs also have teams of research analysts to support the fund managers.
In 1963, Government of India formed the Unit Trust of India (UTI). In the year 1992, public sector banks and institutions were allowed to setup mutual funds by passing the SEBI Act 1992. To understand what is AMC and how they are integral part of the mutual fund structure in India, let us see the chart below –
|Sponsor||The Sponsor is the promoter of a mutual fund. The sponsor forms a trust and appoints the board of trustees.|
|Trustees||Regulates the mutual fund while adhering to SEBI and AMFI norms. Trustee ensures investors protection.|
|AMC||Takes a call on which securities to sell/buy/hold and manages the investments of unit holders with the help of research analysts and fund managers.|
|Custodian||It is responsible for holding and safeguarding the mutual fund units.|
|RTA||RTAs does accounting and are record keepers|
Sponsor of a mutual fund is the promoter of the mutual fund. The Sponsor must have at least 5 years track record in financial services business (e.g. banks, financial institutions etc.) to apply for the license. To setup the mutual fund, the sponsor makes an application to SEBI. Once approved, the Sponsor provides the required capital for setting up the mutual fund company. In India, the Mutual Funds are set up as a Trust. After the SEBI approval the sponsor appoints a board of trustees to ensure full compliance according to SEBI’s requirements.
The trustees appoints the AMC which manages the assets of a mutual fund. The trustees also appoint a custodian for safe-keeping of scheme assets. The main role of the trustee is to ensure that the interest of the investors are protected.
Custodians are banks and familiar financial institutions registered with SEBI, and are appointed by the Board of Trustees. They are responsible for holding and safeguarding the securities owned by a mutual fund.
RTA or Registrar and Transfer Agent are appointed by the AMC. The RTAs carry out the application processing, allotment of units, redemption of funds and despatch of account statements known as SOA to the unit holders. The R&T agents also carry out the fund accounting, investor communication and other functions necessary for investor servicing and maintenance of accounts.
In this article, we discussed what is AMC and also how it is setup and its functions. If you have any further queries about AMCs, you can discuss the same with your financial advisor.
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