As the year 2020 is around the corner, one looks forward to the changes it will bring in the social, political and economic sections of India. Reportedly, some major provisions...
If you’re willing to start your own Mutual Fund Company, then you must first understand the concept of Mutual Fund. Basically, it’s a collection of money that is put together by investors. In other words, we can say that it’s a pool of money that manages to earn the highest possible return.
All the money that is pooled together as a fund is managed collectively to ensure that it gives the highest possible return. The fund is managed by professional fund managers.
Mutual Fund Registration in India
A mutual fund is a collection of a pool of funds of investors that are invested by the fund managers. Furthermore, the return that is earned in the form of dividends is distributed amongst the investors as a return of their investment.
In return, the Assets Management Company charges the fee for such services. Mutual fund & its registrations are regulated by the SEBI (Mutual Fund) Regulation, 1996.
Browse through our articles on services provided at Swarit Advisors, and just let us know if we can help you with your IPO or Comapny Takeover or SEBI Advisory Services.
Eligibility for Mutual Fund Registration
For the grant of certificate of registration, an applicant shall fulfill the following eligibility criteria of SEBI (Mutual Fund) Regulation, 1996:
- The sponsor should have a soundtrack record & reputation of fairness & integrity in his past experiences & business transactions.
- It shall have the experience of carrying businesses and provides financial services for more than 5 years. And the net worth in all those 5 years shall be positive.
- The sponsor has to contribute 40% or more to the net worth of the Asset Management Company.
- The sponsor should not be guilty of fraud & has not convicted any offense that involves moral turpitude.
- The sponsor shall appoint a mutual fund trustee.
- Appointment of Asset Management Company to manage the funds & operations of Mutual Fund. The net worth of such an asset management company shall be INR 5 Crore.
- Appointment of custodian for keeping the custody of securities
- The mutual fund shall get registered as Trust under Indian Trust Act, 1882
- The memorandum shall have the objects that authorize the sponsor company to carry on the activities of mutual funds.
Management of Mutual Fund
Mutual Funds established in India are collectively managed by the bunch of its members who perform their respective roles:
- Mutual Fund in India is registered in the form of trust. They appoint trustees, sponsors, Asset Management Company & custodians. Trust is established by a sponsor who is like the promoters to the Company
- Trustees hold the property of mutual funds for the benefits of unitholders. Trustees are vested with the general superintendence & direction over AMC. They look after performances of Mutual Fund & that they comply with the guidelines of SEBI for Mutual Funds.
- Asset Management Company approved by SEBI manages & handles the funds & investment in various types of securities along with the return on its investment.
- Custodian holds the securities of various schemes in its custody with his general superintendence & directions of Asset Management Company.
How to Start a Mutual Fund Company
Here are the steps to start your own mutual fund company in India:
1. Necessary Approval from SEBI
If you are planning to start up your own private mutual fund company, the first most step is to get approval from SEBI & get the certificate of registration from SEBI. Then an applicant needs to get approval from Securities & Exchange Commissions. After approval is granted, the individual must have adequate operating capital to sustain the company.
2. Explore Investment Companies
Mutual funds are the investment companies registered with the Security & Exchange Commission. SEC applies strict rules & provisions for mutual funds such as it has to mandatory maintain enough capital to cover investors cashing in shares and to publish necessary information available publicly. An individual has to set up a corporation in the form of a Limited Liability Company of LLP to start a mutual fund.
3. Investment Manager
Get approval for institutional investment management from SEC for managing the mutual fund. An individual can get the registration using Form ADV, which is also used for some state registration requirement. Disclosure is required under Form ADV about the size of portfolios an applicant wants to manage. Institution investment managers who manage the portfolio exceeding $ 1 Million must file a Form 13F which contains the details of the fund’s portfolio transactions and value.
4. Fund Arrangement
Fees and operating costs are part of the running expenses of the mutual fund. Attracting the investor’s fund to build a portfolio is the heaviest expense of any mutual fund. Startup cost can be a very small amount but an individual needs a portfolio of huge amount for being a profitable company.
5. Partner With Shared Trust
A mutual fund can get partnered with any shared trust who provides the board of directors, insurance, regulatory compliances. These companies help small-sized and start-up mutual funds to be more competitive & mutual fund managers can make their own decision.
Process of Registration of Mutual Fund with SEBI
Following is the step by step procedure for getting the registration of Mutual Fund with SEBI:
- An applicant shall apply form A as per schedule I of SEBI (Mutual Fund) Regulations 1996 along with the non-refundable fee of INR 5 Lakh.
- A person who holds 40% or more net worth of asset management company is deemed to be a sponsor & he is required to file an application.
- While a sponsor company applies for mutual fund registration, it has to make sure that its MOA has a clause of object permitting to carry on the activities of the mutual fund.
- A complete list of the group companies or associated companies that are registered with SEBI in any form shall be attached to an application.
- Details of the sponsor company or its associate company if listed on any stock exchange shall also be mentioned
- Declaration stating that director or any officer connected with the sponsor company has not been found guilty of fraud or has not convicted any offense involving moral turpitude
- If the sponsor company is registered with RBI as a Banking Company or Non-Banking Company, the details of the same shall also be annexed
- Trust deed shall be executed along with setting up the board of trustees comprising two/third of independent directors.
- Incorporate the Asset Management Company & the Trustee Company. Submit completed Memorandum of Association & Article of Association of these companies.
- After Incorporation of these two companies, submit the auditor’s certificate certified by Chartered Accountant who certifies:
1. The sponsor has contributed 40% of the net worth of AMC
2. AMC has a net worth of not less than INR 10 Crore.
- The sponsor Company then has to execute a trust deed & investment management agreement that has to be filed with the complete checklist.
- Complete details of Infrastructure facility should be filed with SEBI containing the following details:
1. Address & details of the office premise
2. Organization chart of AMC
3. Profile of HR including that of fund managers & equity research personnel
- Appoint the custodian.
- During the registration process, an applicant has to provide all the required information or query raised by SEBI at any stage of process within 30 days of communication.
- Upon satisfying the application that it is completed in all aspects, the certificate of registration is granted in Form B subject to the payment of registration fee of INR 25 Lakh.
- In cases where the sponsor does not satisfy the eligibility criteria & its application is not completed, authority can reject the same stating the reasons for the same.
Types of Mutual Fund
Following are the types of mutual funds option available:
- Open-Ended funds: These funds have no maturity date. They can be purchased and sold by an investor at any point in time.
- Close-Ended funds: these funds have a fixed maturity period & investment can be made during the initial launch period.
- Equities funds: this is the popular category amongst retail investors. They are a high-risk investment in the short run and profitable & provide capital appreciation in the long run.
- Index fund: popular in the west they follow a passive investment strategy where the investments move exactly as per the movements of the benchmark.
- Sectoral funds: these funds provide extremely high risk- high return opportunity to the investors. These funds are invested in specified sectors such as infrastructure, IT sector, pharmaceuticals, etc.
- Tax saving funds: this scheme offer tax benefit to the investors. These funds are invested in equities thus providing long-term benefits to investors. Tax saving mutual funds are also known as Equity Linked Saving Schemes. These funds have a lock-in period of 3 years.
- Balanced funds: This fund gives investor’s investment a regular growth & income. Investment is done in both equity & fixed income securities. Proportion at which an investment is done is disclosed in the offer document.
Annual Fees Payable by Mutual Fund
A registered mutual fund has to pay annual fees or before 15th day of April of every financial year calculated as per below on:
|Average Assets Under Management as on 31st March||Annual Fees|
|Up to INR 10000 Crore||0.0015% of Average Assets|
|Above INR 10000 Crore||0.0015% of Average Assets up to INR 10000 Crore + 0.0010% of Average Assets above INR 10,000 Crore|
- Minimum Annual Fees payable: INR 250000
- Maximum Annual Fess payable: INR 10000000
In conclusion, a mutual fund is a pool of funds created by putting up all the money together by different investors. All the money pooled is then invested in a profitable source & the fund is managed by a professional fund manager. Mutual funds are the safest option as they hold the characteristic of being less volatile. Mutual funds give a good amount of return in the long run as they synchronize with being less volatile. The investor need not take care daily of his stock as the same is being handled by fund manager registered with SEBI.