The Indian Mutual fund industry consists of the following segments: (1) Banks and financial institutions sponsored mutual funds (2) private and foreign sector mutual funds.
The industry has grown in size and manages total assets of more than $22 Billion. It has also demonstrated its efficacy as professional fund managers. With nearly 400 schemes of various varieties and types and with a record of performance, the mutual fund is becoming increasingly popular among the investors.
The Association of Mutual Funds in India (AMFI) on its part is constantly striving to upgrade industry standards in all areas of operation of mutual funds.
The Mutual Fund Industry is well regulated by the Securities and Exchange Board of India (SEBI) under Mutual Fund (Regulation) 1996. The standards in many areas such as disclosure, valuation, transparency, NAV construction, fees and expenses, risk management etc match with international levels.
ROLE AND ACTIVITIES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA - AMFI: AMFI is the industry association of all mutual funds operating in India. It is anon-profit organisation whose objectives are:
i) to promote and protect the interests of Mutual funds and their unit holders
ii) to define and maintain high ethical and professional standards in the industry.
iii) to enhance public awareness of Mutual funds
iv) to represent industry views and suggestions to the regulator, Government and the Central Bank.
WORKING CLOSELY WITH THE REGULATOR: AMFI closely works with the regulator, the Securities and Exchange Board of India (SEBI) in the formulation of rules and regulations of mutual funds and in evolving highest professional standards in all areas such as valuation, disclosures, transparency, accounting, risk management for mutual funds etc.
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Total number of Schemes and Assets by type of funds as at June 30, 2003
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Assets under Management
Type of fund No of (US$ Million)
schemes Open Close Total
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I Equity Funds 118 2166 196 2362
II Bond Funds 118 13354 460 13814
IIIBalanced Funds 36 581 152 733
Liquid/Money
IV Market Funds 31 4340 - 4340
Govt. Securities
V Funds 30 1033 - 1033
Tax Saving
VI Equity Funds 43 89 208 297
TOTAL 376 21563 1016 22579
US $1= Indian Rupees 46.4 as on June 30, 2003
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CERTIFICATION AND REGISTRATION OF MUTUAL FUND DISTRIBUTORS: AMFI has a certification and registration program for agent distributors of Mutual Funds.
This is based on a comprehensive workbook on Mutual Funds dealing with all relevant subjects such as fund structure, accounting and valuation etc. The certification and registration program have been made mandatory by SEBI.
AMFI - DATA BANK OF MUTUAL FUND INDUSTRY:
AMFI is developing its data bank for the Mutual Fund Industry. It brings out statistics on Mutual Fund Industry monthly, quarterly and yearly. It also has a newsletter published every quarter giving developments in the Mutual Fund Industry (these newsletters are available in the AMFI website www.amfiindia.com).
AMFI - OFFICIAL PLATFORM FOR NAV RELEASE: AMFI monitors the publishing of the NAVs of all the schemes of all the Mutual Funds. Infact AMFI website is the official platform for releasing of NAVs by the Mutual Funds. It is mandatory that all open-end Mutual Funds publish NAVs on the AMFI website by 8.00 P.M everyday.
BENCHMARK INDICES FOR BOND AND BALANCED FUNDS: AMFI took the initiative of developing new indices for bond, balanced and liquid funds by a third party research organisation for comparing the performance of mutual funds. It is now mandatory for all mutual funds to publish the performance data along with the relevant benchmark indices.
TRENDS CONCERNING INTERNATIONAL INVESTMENT FUNDS: Indian mutual funds are now permitted to invest in equity of listed overseas companies, which have at least 10% shareholding in an Indian listed company within the overall cap of US$1Billion for the entire mutual fund industry. Securities and Exchange Board of India (SEBI) has also permitted each mutual fund to invest in foreign securities upto 10% of its Net Assets as on January 31, 2003 subject to a minimum of US$ 5 million and maximum of US$50 million per mutual fund. Two schemes are already in operation, which invest in foreign securities.
LEGAL AND REGULATORY DEVELOPMENTS:
a) Regulatory news concerning investment funds
Mutual Funds, while converting close-end schemes to open-end schemes, should comply with the requirements such as communication to unit holders, disclosure of portfolio of scheme, addendum to offer document, if any, filing of revised offer document, time period to be given to unit holders for exercising exit option etc.
All mutual funds have been advised by SEBI to provide transaction details of various types of debt securities on daily basis to the agency recommended by AMFI. This is required for helping daily generation of matrix for the valuation of securities and to improve uniformity and accuracy of valuation in the mutual fund industry.
Mutual Funds can participate in the trading of interest rate derivatives through stock exchanges subject to appropriate disclosures in the offer document.
SEBI has issued advertisement guidelines in respect of advertisements through hoardings/posters/audio-visual media, promotional activities, sales literature, disclosure of benchmark in advertisements, disclosure of return in case of money market schemes, distribution tax - impact on returns etc
b) New tax regulations
The dividend received from MFs will not be taxed in the hands of investors. Instead, MFs will be paying a 12.5% dividend distribution tax. For equity-oriented schemes, even this distribution tax will not be applicable for a year commencing from April 2003.
NEW PRODUCTS: Apart from sector specific and index funds, the new products launched are exchange-traded funds. There are three such funds based on the stock market indices. Recently a unique liquid fund that is listed and traded on the Stock Exchange just like a share called as Liquid Exchange Traded Fund has been launched by one of the funds.-Courtesy: MUFAP
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