Organizational Structure of Mutual Funds in India

Mutual fund investment has become so popular that today, everyone is ready to invest in them, right from a seasoned investor to the middle-class common man. But not everyone exactly knows how a mutual fund works. Yes, we may know that it is a pooled fund from various investors that is invested in equity or either securities. But who exactly does it and how is it done? Who actually runs a mutual fund and how is the mutual fund organized?Some of us may think, do we really need to know the nitty gritties of how a mutual fund is structured? I say, yes! We’re putting our hard earned money in mutual funds, it is our duty to understand who runs a mutual fund for a very simple reason: Trust. When we know how a mutual fund works , how it is organized, who runs it, we gain some trust and are likely to invest more as we understand more detailsabout it.So, let us begin with an introduction to the organizational structure of mutual funds.

What we popularly call a mutual fund is in actuality a type of business. In the business of mutual funds, there are around 30-40 companies that are called fund houses. These companies have registered and have been allowed to operate mutual fund schemes by a government regulatory body called the Securities and Exchange Board of India. It is these schemes that are bought and sold daily by us, the investors, the common people.Basically it works this way:Mutual Fund Business -- > Fund House -- > Individual Scheme -- > InvestorsWe always see the term fund manager when we’re looking at mutual funds. But, apart from the fund manager, there is also the chairman, the CFO, the CEO of a fund house.

The basic structure of a mutual fund house is three-tiered. The three tiers comprise of:1) Sponsor2) Trustee3) Asset Management Company (AMC)In India, this three-tiered structure has been framed by the SEBI.The conceptualisation of a mutual fund is begun by the sponsors. They decide to start a mutual fund business. They then approach the SEBI for registration of their business.The sponsors must pass the following criteria in order to successfully register their mutual fund business:

• They must have an experience of 5 years in financial services.
• They must be a profit making company for at least 3 years.
• And finally, the net worth of the company for the last 5 years must be in the positive.

Once the SEBI verifies the credentials of the sponsor, they issue the Certificate of Registration.Once the Certificate of Registration is received by the sponsor, they can then proceed with the next steps to form their fund house.1) Formation of Trust2) Appointment of AMC3) Appointment of Depository (Custodian), Registrar, Transfer Agent, and Auditor.

The Aditya Birla Sun Life Mutual fund is structured in the following way:

Sponsor:

A joint venture between Aditya Birla Capital Limited and Sun Life (India) AMC Investment Inc based in Canada.

Trustee:

Aditya Birla Sun Life Trustee Pvt. Ltd.

AMC:

Aditya Birla Sun Life AMC Limited

When we get a clear idea of how exactly a mutual fund house originated, and which companies are running it, our faith and trust in the mutual fund is strengthened. That is why we must always know the organizational structure of a mutual fund house. This information is not hard to find. On the contrary, a simple Google search can give you the exact information you’re looking for.The fund houses themselves also have this information on their individual websites. The AMFI or the Association of Mutual Funds in India also has a ton of information regarding all mutual funds in India. So, ensure that you know every bit of information regarding a fund house so that you know where exactly your investment is going.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.