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Asset Management Company
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An Asset Management Company is a company that is responsibile for pooling money from investors into securities that match declared financial objectives.
It is responsible for conducting the day to day affairs of the various schemes that are managed by it.
AMC's launch and wind-off schemes, assign fund managers to schemes, manages the financial operations such as collecting money into the bank account, making payment obligations in case of redemption etc.
AMCs generally have a well documented process according to which the fund manager will make investments into the schemes.
Thus, in case of an exit by a fund manager, the new manager who comes in his place can follow the process easily without having much of a discontinuity.
It charges an AMC fee for the services it renders. In most cases, this fee is charged from the scheme and hence forms an expense of the scheme.
The directors of the asset management company need to be persons having adequate professional experience in finance and financial services related field.
The directors as well as key personnel of the AMC should not have been found guilty of moral turpitude or convicted of any economic offence or violation of any securities laws.
Key personnel of the AMC should not have worked for any asset management company or mutual fund or any intermediary during the period when its registration was suspended or cancelled at any time by SEBI.
The AMC is appointed by the Trustees.
Prior approval of the trustees is required, before a person is appointed as director on the board of the AMC.
Further, at least 50 percent of the directors should be independent directors i.e. not associate of or associated with the sponsor or any of its subsidiaries or the trustees.
The AMC needs to have a minimum net worth of Rs. 50 crore. AMCs in existence in May 2014 were given 3 years to raise their net worth to Rs. 50 crore. However, they were not allowed to launch new schemes until they comply with the Rs. 50 crore net worth requirement.
Although the AMC manages the schemes, custody of the assets of the scheme (securities, gold, gold-related instruments & real estate assets) is with a Custodian, who is appointed by the Trustees.
A change in the controlling interest of the AMC can be made only with the prior approval of the trustees and SEBI.
A written communication about the change in the controlling interest of the AMC is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head Office of the mutual fund is situated. The unitholders are given the option to exit at NAV without paying an exit load.
The AMC is responsible for conducting the activities of the mutual fund. It therefore arranges for the requisite offices and infrastructure, engages employees, provides for the requisite software, handles advertising and sales promotion, and interacts with regulators and various service providers.
The AMC has to take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of the SEBI regulations and the trust deed. Further, it has to exercise due diligence and care in all its investment decisions.
The appointment of an AMC can be terminated by a majority of the trustees, or by 75 percent of the Unit-holders. However, any change in the AMC is subject to prior approval of SEBI and the Unit-holders.
Operations of AMCs are headed by a Managing Director, Executive Director or Chief Executive Officer.
Chief Investment Officer (CIO), who is responsible for overall investments of the fund. Fund managers assist the CIO. As per SEBI regulations, every scheme requires a fund manager, though the same fund manager may manage multiple schemes.
Securities Analysts support the fund managers through their research inputs. As will be discussed in Chapter8, these analysts come from two streams—Fundamental Analysis and Technical Analysis. Some mutual funds also have an economist to analyse the economy.
Securities Dealers help in putting the transactions through the market. The mutual fund schemes’ sale and purchase of investments are executed by the dealers in the secondary market.
Chief Marketing Officer (CMO), who is responsible for mobilizing money under the various schemes. Direct Sales Team (who generally focus on large investors), Channel Managers (who manage the distributors) and Advertising & Sales Promotion Team support the CMO.
Chief Operations Officer (COO) handles all operational issues.
Compliance Officer needs to ensure all the legal compliances. In Offer Documents of new issues, he signs a due-diligence certificate to the effect that all regulations have been complied with, and that all the intermediaries mentioned in the offer document have the requisite statutory registrations and approvals.
In order to ensure independence, the Compliance Officer reports directly to the head of the AMC. Further, he works closely with the Trustees on various compliance and regulatory issues.
AMCs are required to invest seed capital of 1 percent of the amount raised subject to a maximum of Rs.50 lakh in all the growth option of the mutual fund schemes through the lifetime of the scheme.
Example of AMC: SBI Funds Management Private Limited
Related Topics
- Introduction to Mutual Funds
- Mutual Fund Units
- New Fund Offer (NFO)
- Net Asset Value or NAV
- Know Your Customer / KYC
- Expense Ratio
- Systematic Investment Plan and Compounding effect
- Systematic Transfer Plan (STP)
- Systematic Withdrawal Plan (SWP)
- SIP vs Lumpsum Investments
- Open-ended, Close-ended and Interval schemes
- DIRECT plan vs REGULAR plan
- GROWTH option vs DIVIDEND option
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