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Legal and Regulatory Environment of Mutual Funds in India

Anmol Gupta

In this part 3 of our Mutual Funds series, we talk about different entities which regulate, guide and run the mutual fund industry in India.

1. Sponsor, Trustees and Asset Management Company (AMC) 

Sponsors set up the mutual fund, and then appoint people called trustees to look after the interests of investors like you in the schemes launched by the mutual fund! Yes, they fight for your rights :) Then an entity called as Asset Management Company is hired to manage the activities like launch the scheme, market it so that we get to know about it, sell the units of the schemes to investors like us and finally invest the money keeping the investment objectives in mind. For example, ICICI Prudential Mutual Fund is sponsored by Prudential Plc and ICICI Bank Limited, the trust company is ICICI Prudential Trust Limited and the AMC is ICICI Prudential Asset Management Company Ltd. The AMC proposes new schemes, which are then approved by trustees and board of directors of the AMC.

2. Securities and Exchange Board of India (SEBI)  

SEBI regulates securities markets in India. SEBI lays down the regulations which direct other market related entities. For example, SEBI regulations provide broad guidelines on limits to the kind of investments which are possible in mutual fund schemes, to ensure a minimum level of portfolio diversification. SEBI also vets the new scheme proposals given by the AMCs.

3. Association of Mutual Funds in India (AMFI) 

AMFI is a non-profit organization, formed by the association of SEBI registered Asset Management Companies. AMFI is dedicated towards recommending best practices and overseeing the functioning of mutual fund industry.

4. Reserve Bank Of India (RBI) 

RBI regulates areas such as foreign exchange transactions like investment in foreign markets or the investment made by foreigners.

So, what do you do with all the above information? 

Well, it’s the legal infrastructure set up for operation of mutual funds in India. You won’t generally need to care about any of these. But, looking at the sponsors and trustees, you can sometimes assess the credibility of the funds. You might feel confident to invest in a mutual fund managed by a company that is known to you as compared to a fund set up by a company not well known to you.

So far, we have just scratched the surface of mutual funds. Stay tuned for a real dive into the world of mutual funds.

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About the Author
Anmol Gupta
Anmol is CEO at 7Prosper. He is SEBI Registered Investment Adviser, with expertise in Finance and Technology domains. Anmol is committed to help people achieve their financial freedom.

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