In this article, Shubham Prakash discusses key highlights of Association of Mutual Funds in India (AMFI).

AMFI

AMFI stands for Association of Mutual Funds in India and it is non-profit organizations which act as an umbrella for all the mutual funds. It came into existence in August 1995, listed under Securities and Exchange Board of India (SEBI). Its main duty is to expand and enhance the Indian Mutual Fund Industry on a professional basis. It seems that the interest of unitholders of the Mutual Funds is protected, preserved and promoted.

Mutual Fund

A mutual fund is a professionally-managed trust that pools the savings of many investors and invests them in securities like stocks, bonds, short-term money market instruments and commodities such as precious metals.[1] Any investor can invest in mutual funds with a little surplus of Rs. 100 at least. They buy every unit of a share of Mutual Funds which is known as investment objective and strategy. The sum of the amount which is first collected and then it is invested by the fund manager in different types of securities.

Governing body of AMFI

In the year 1964 the AMFI functioned under the regulatory and administrative control of the Reserve Bank of India (RBI). Then in the year 1978, it was de-linked and was administered under the Industrial Development Bank of India (IDBI). In the year 1987 AMFI made an entry to public sector mutual funds where it was regulated by Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). But with the coming of Securities and Exchange Board of India (SEBI) in the year 1992 the AMFI is governed by it. Currently, AMFI follows the regulation of SEBI and they are the governing body.

Is AMFI a government or a private body?

AMFI is a governmental body because it has been regulated by a government body like RBI, IDBI, LIC, GIC and currently it is governed by SEBI. Also, it is a non-profit organization which works for the welfare of government.

Relationship between AMFI and SEBI

As AMFI is regulated by SEBI regulations, it is important to protect the interest of the investors. In the year 1993, the SEBI increased the number of members with the coming of foreign sponsors setting up funds in India. Also, AMFI was benefited from many mergers and acquisition. There was a time when the investor was not getting any benefit from any mutual fund industry. But in the year 2012 SEBI introduced several progressive measures where many investors started investing in the mutual fund industry. Since May 2014, the SEBI guideline has brought an increase in the steady flow of Assets under Management (AUM) which is a part of AMFI.

Impact of SEBI

• For the first time within a period of 2 years, the AUM has crossed the milestone of INR 15 lakh crore in July 2016.
• The number of investors has increased from 3.95 crores to 4.98 crores within a period of 2 years.
• On an average 3.38 lakhs, new folios have been added every month in the last two years.

The growth in AMFI has been possible because of the regulatory measure that has been taken by SEBI.

Business structure of AMFI

The business structure of AMFI is regulated by SEBI which consist of a sponsor, trustee and asset management company (AMC). Although these play a major role in creating and running a fund house the custodian, registrar and transfer agent (RTA), auditors and the fund accounts play an important role in smooth functioning of a mutual fund.

Sponsor

It is the important body which establishes a Mutual fund. They are like a promoter of a company. They appoint the trustee with the approval from SEBI and sets up AMC. For becoming a sponsor of AMFI they have to follow the SEBI guideline where the sponsor should have a track record of carrying a business in the financial services for not less than five years. They should contribute to 40 % of net worth of AMC.

Trustee

The main role of trustee is to protect the interest of unit holder and the mutual fund compliances with the regulations of SEBI. It is the sponsor who appoints four trustees or establishes four trustee companies with at least four independent directors. They also enter into an investment management agreement with AMC in order to discuss its function. The entire scheme which is made by the AMC for AMFI should be approved by the trustees before its implementation. The trustee reviews the transaction made by AMC while filing reports to SEBI on half yearly basis.

Asset Management Company (AMC)

AMC is an investment manager of AMFI which operates mutual fund and manages the investor money. The trustee or sponsor after the approval of SEBI appoints the AMC. It consists of Chief Investment Officer, the fund managers and analysts who carry the schemes of AMFI.

What does AMFI do?

Integrity

• In order to operate the mutual fund industry, they maintain high professional and ethical standards of integrity in dealing with their investors, issuers, market intermediaries etc.
• As they are not a profitable organization so they represent the government, RBI and other bodies on all matters of Mutual Fund Industry.
• With the help of government and other bodies, they conduct a research and gathers information on the functioning of Mutual Fund Industry.
• They conduct and operate portfolios for the Mutual Fund Schemes, for the interest of their unitholders and not in the interest of sponsors, directors of Members, members of the board of Trustees or directors of the Trustee Company, brokers and other market intermediates and associates of the Members.
• They interact with SEBI and represent them in all the social and financial matters relating to mutual fund industry.

Due Diligence

It is defined as an investigation of a business or person prior to signing a contract, or an act with a certain standard of care.

• The member of the industry should have a good code of conduct in order to promote and recommend their business practices across India.
• The member should provide a high standard of service and due diligence to the mutual fund industry.
• For the Asset of Management Activities, the AFMI should employee adequate resources which are beneficial for their conduct.
• If there is any violation of a code of conduct from the distributor then there will be a disciplinary action against his conduct.
• At the same point in time, they protect the interest of an investor or a unitholder.

Disclosures

• It is the duty of the members of AMFI to disclose all the unit holders with adequate and accurate information of the investment objectives, investment policies and financial position of their scheme.
• There is some member of the industry which are busy in managing the activity of mutual fund including the organizations or company which are involved in the matter pertaining to capital markets and financial services.
• They conduct an investor awareness program through India, in order to promote the concept and working of mutual funds.
• It is the duty of the members of AMFI to disclose the investment pattern, turnover of the portfolios scheme and ratios of expenses on annual basis to the unitholders.
• When the member enters into the transaction of purchase and sale of securities with respect to any of the unitholders, the same details of the transaction and sale should be submitted to the Board of Trustee explaining the goodness of the scheme.
• It is the duty of the members to disclose to the compliance officer about the transaction of purchase and sale of securities at least half yearly and the same should be reported to the Board of Trustees.

Professional Practices

• The sale of products and scheme should not be persuaded fraudulently by the members of the AMFI.
• They should not exaggerate the price of a product.
• It is the duty of the members of the AMFI to provide the investors with good services and adequate information about the sale of products without misleading or exaggerating any scheme.
• If there is any defect in the sale of the products the same should be conveyed to the investor before the investment decision is made.
• On the request of the investors, the copy of prospectus, memoranda and related literature should be provided by the members of the AMFI.
• There should be fairness in allotting the share of the mutual funds unit and if there is any defect in allotting the share, the money should be refunded without any delay within a prescribed time limit.
• It is the duty of the members of AMFI to deal fairly with a complaint filed by the investors on the sale of products.
• It is the duty of the selling agent not to provide mutual funds scheme against the new share issued.
• The members shall not return the money, until and unless it is provided in offer document of scheme guaranteed by SEBI.
• The guaranteed returns should be based on the adequate resources available with AMFI.
• It is the duty of the members to convey the investor about the market and investment risk of a particular product.
• The members should offer the benefits of the sale of product and scheme to the investor but cannot induce them.

Investment Practices

• The fundamental investment policy and objective should be taken into consideration which has been offered in a document by the members of AMFI while managing the scheme.
• The interest of the unitholder should be taken into consideration while taking the investment decision.
• The member should not intentionally buy or sell securities to any director, officer or employee of the trustee company.

Operations

• The members while operating the mutual funds should avoid the conflict of interests with all unitholders, the interest of the holders should be taken into consideration.
• The members should give primary focus to the transaction of the mutual funds and should indulge in the buying or selling of the products.
• The directors, officers or employee of AMFI should give information about the transaction and investment decision to the unitholder without making it public.
• The directors, officers or employee of AMFI should not use an unfair advantage in procuring the expense of fund from the unitholders.
• The members shall not enter into a fraudulent trade of purchase, sale and redemption of units of product during the course of business.
• The members shall not disclose any secretive or sensitive information to a broker during the course of business.
• A disciplinary and strict action will be taken against the members if they work unethically or unfairly against the unitholders.
• The directors, officers or employee of AMFI should not work as an agent or a broker until and unless they have been authorized as the Trustee of Company.
• The members are not authorized to make any fundamental changes in the attribute of a scheme, without the permission of unitholders and such changes should be in relation to the regulations of AFMI.

Reporting Practices

• The policy made by the members should be standard, comparable and conventional and should follow the regulations of SEBI Mutual Funds.
• It is the duty of the member to report AMFI about the total return made by performing uniformly.
• There should be an individual separation of cash and security account made by the members.

Provision of Statutes, rules and regulations

• It is the duty of the members to follow the provisions of the Statutes, Rules and Regulations while applying the relevant activities carried on while selling the products and scheme.

Enforcement

• It is the duty of members to communicate the objective and idea of AMFI code to the entire person.
• The AMFI should provide employment to the people.
• If there is a violation of provisions of the code or there is a revocation of contract by the parties, then there will be a disciplinary action taken against such parties.
• When a person is employed in AMFI, it is their duty to read, sign and approve the statement of the code.
• The AMFI supervise, control and regulate the mechanism.
• They give power to a particular person to investigate all the possible violations made by the members and unitholders.
• The authorized person has to report to the competent authority about violation of the Code.
• The authorized person has to observe the Code and file a regular report to the Trustees on a half-yearly or annual basis.
• They have to maintain and record the transaction of past last three years, which should be reviewed by the Trustee.

Ensuring there is no Unfair Competition

• The members should not share any confidential data which is likely to harm the other members AMFI or which will put the members in any disadvantage position in relation to the sale of products.
• It is important not to share the confidential data of AMFI because that will lead to unfair competition in the market.

Where to make a complaint if AMFI’s members are involved in Unfair Competition?

If members of AMFI are involved in an Unfair Competition, then SEBI has provided with a centralized web base complaint redress system known as ‘SCORES’. But firstly the complaint should be made to the concerned/intermediary/Mutual Fund and if they are not taking action then the can directly go to the website and file a complaint.[2]

How to report grievances?

The investor has to make a complaint on SCORE website. The investors initially have to approach the concerned listed company or SEBI and file a report for the speedy redressal. The SEBI is the concerned authority that issues circulars that give direction from time to time to SCORES. The circular inter alia consolidates the following circulars/directions issued by SEBI in this regard till date and shall come into force. The report is made by the investor who has to send their details by filling the Form-A and Form-B on the website and they obtain the username and password from SCORES. The report made should be a genuine one otherwise a strict action would be taken against them.

How AMFI, as a trustee can help investors?

AMFI is regulated by SEBI which consists of a sponsor, trustee and asset management company (AMC). It is important for AMFI to act as a trustee to help the investor because they are the first-level regulatory body which protects the interest of the investor. As we know that in every mutual fund industry the investor invests in order to get maximum profit. They expect that they get profit depending on the ratio of which they have invested the money. It is the duty of the AMFI to provide maximum profit to the investor as well as the to the mutual fund industry. AMFI has a team of experts who act as trustee, they figure out in which mutual fund industry to invest at what of time they will get maximum profit. If the investors question the investment process then the trustee is liable to give the reasoning for which the loss has been incurred. According to SEBI mutual fund regulations, 1996 the investor has to make a report if there is a loss incurred.

[1] https://www.principalindia.com/knowledge_centre/mutual-fund-basics.aspx (last accessed on 12/ 12/ 2017)

[2] https://scores.gov.in/scores/Welcome.html (website at which complaint can be filed)