Mutual funds are a challenging concept for most people to grasp, but they are unquestionably a successful business strategy. Establishing a mutual fund company in India is not straightforward, but if you understand the entire procedure, you may simply do it and earn handsomely. A Mutual fund company involves a collection of money from its investors put together to make the highest profit returns from the invested money. It is a pool of money that is invested at different places to lower the risk of loss in case a single channel fails to give expected results and thus increasing the likelihood of booking profits. All the funds are managed by professional managers.
What are Mutual Fund Companies?
Mutual fund company is a type of financial firm. It collects the money from the different investors in the market. That is how such companies get their funds and they further pool these funds to buy various types of stocks, bonds, or other assets. These companies manage the investments on behalf of the investors. Each investor in a company of mutual funds must be owning a portion of the holdings proportionate to the amount they’ve invested. The companies have professional managers who make decisions on where to invest the pooled money in different financial instruments. The aim is to grow the investors’ money over time and offer them returns based on the fund’s performance in the market.
Registration of mutual fund company in India
Because of the huge profit margins, it draws a lot of con artists and those that engage in unethical behavior. As a result, the SEBI (Securities Exchange Board of India) 1996 makes it essential to register a mutual fund company. Mutual fund companies are governed by the SEBI.
To get a certificate of registration of Mutual Fund, the applicant must meet the following necessary requirements:
- In his previous experiences and commercial dealings, the sponsor should have a track record of fairness and honesty.
- It must have at least 5 years of experience running a business and providing financial services. And throughout the course of those five years, the net worth will be positive.
- The sponsor must provide at least 40% of the Asset Management Company’s net value.
- The sponsor should be free of fraud and have never been convicted of a crime involving moral turpitude.
- A mutual fund company trustee must be appointed by the sponsor.
- Appointment of an Asset Management Company to administer the Mutual Fund’s money and activities. A net worth of INR 5 crore is required for such an asset management business.
- Appointment of a custodian for the safekeeping of securities
- Under the Indian Trust Act of 1882, the mutual fund company must be registered as a trust.
- The memorandum must include the objects that permit the sponsoring business to conduct the mutual fund company’s operations.
Steps to start a mutual fund company in India
1. SEBI approval is required.- If you want to form your own private mutual fund company, the first step is to apply for SEBI permission and obtain a certificate of registration. After that, the Securities and Exchange Commission must approve the application. Following approval, the person must have sufficient operational cash to keep the business afloat.
2. Look at Investment Firms- Investment businesses that are registered with the Securities and Exchange Commission are known as mutual funds. For mutual funds, the SEC has tight requirements and provisions, such as maintaining adequate capital to compensate investors for cashing in shares and making relevant information publicly available. To start a mutual fund company, an individual must incorporate a company in the form of a Limited Liability Partnership (LLP).
3. A financial advisor-Obtain clearance from the Securities and Exchange Commission (SEC) for institutional investment management in order to manage the mutual fund company. Form ADV, which is also used for various state registration requirements, can be utilized to get registration. The size of portfolios an applicant wishes to manage must be disclosed on Form ADV. Institutional investment managers with portfolios worth more than $1 million must submit a Form 13F, which provides information on the fund’s transactions and value.
4. Arrangements for Funding- Fees and operational expenditures are included in the mutual fund’s operating expenses. The most expensive expenditure of every mutual fund company is attracting the investor’s money to construct a portfolio. A tiny startup cost might be extremely low, but to be a lucrative corporation, a person requires a large portfolio.
5. Find a partner with whom you can have a mutually beneficial relationship.- Any shared trust can partner with a mutual fund to offer a board of directors, insurance, and regulatory compliance. These firms assist small and new mutual fund companies to become more competitive, and mutual fund managers are free to make their own decisions.
Registration process of Mutual Funds with SEBI
- An applicant must submit Form A and a non-refundable fee of INR 5 lakh in accordance with Schedule I of the SEBI (Mutual Fund) Regulations 1996.
- A person who owns 40% or more of an asset management company’s net worth is considered a sponsor and must submit an application.
- When a sponsor firm files for mutual fund company registration, it must ensure that its memorandum of agreement (MOA) has an object clause allowing the mutual fund company to carry out its operations.
- An application must include a full list of all group firms or linked entities that are registered with SEBI in whatever manner.
- Details of the sponsor firm or its affiliate business, if it is publicly traded, must also be included.
- A declaration that no director or executive of the sponsor firm has been found guilty of fraud or has been convicted of a crime involving moral turpitude.
- The information of the sponsor company’s registration with RBI as a Banking Company or Non-Banking Company must also be appended.
- The trust deed must be signed, coupled with the formation of a board of trustees that includes two-thirds of independent directors.
- The Asset Management Company and the Trustee Company should both be incorporated. Submit these firms’ completed Memorandum of Association and Articles of Association.
- Submit the auditor’s certificate certified by a Chartered Accountant once these two firms have been incorporated.
- The sponsor has donated 40% of the AMC’s net value.
- AMC has a net worth of INR 10 crore or more
- The sponsoring company must then sign a trust deed and an investment management agreement, which must be filed together with the whole checklist.
- Infrastructure facility data should be disclosed with SEBI in full, including the following information:
- The location of the office and its address
- AMC’s organizational chart
- HR profile, which includes fund managers and stock research, people
- Nominate a caretaker.
- Applicants must give all required information or respond to any inquiry addressed by SEBI[1] throughout the registration procedure within 30 days of contact.
- The certificate of registration is provided in Form B if the applicant is satisfied that it is complete in all respects, subject to the payment of a registration fee of INR 25 lakh.
- In circumstances when the sponsor does not meet the eligibility criteria and the application is incomplete, the authority has the discretion to reject the application and explain why.
FAQs
What is a mutual fund?
A mutual fund is a professionally managed investment fund that pools money from many investors to invest in stocks, bonds, money market instruments, and other assets.
Who regulates mutual funds?
In most countries, mutual funds are regulated by financial regulatory authorities such as the Securities and Exchange Commission (SEC) in the United States or the Securities and Exchange Board of India (SEBI) in India.
Why do mutual funds need to be registered?
Mutual funds need to be registered to ensure compliance with regulatory requirements and to protect investors’ interests. Registration involves disclosing essential information about the fund, its management, investment objectives, fees, and risks.
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