ASSOCIATION OF MUTUAL FUNDS IN INDIA

concept:

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these investments and
the capital appreciation realised are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a
mutual fund:
Organisation of a Mutal Fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity
 Transparency
 Flexibility
 Choice of schemes
 Tax benefits
 Well regulated

TYPES OF MUTUAL FUND SCHEMES

Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk
tolerance and return expectations etc. The table below gives an overview into the existing types
of schemes in the Industry.
FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit
NAV is the net asset value of the scheme divided by the number of units outstanding on the
Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales
load.

Repurchase Price

Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such
prices are NAV related.

Redemption Price

Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV
related.
Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes
that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’Load

Is a charge collected by a scheme when it buys back the units from the unitholders.

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The history of
mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.

It was set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI
and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964.

At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase
– 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector
mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC).

SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed
by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private
sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian
investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into being,
under which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996.
 The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The
number of mutual fund houses went on increasing, with many foreign mutual funds setting up
funds in India and also the industry has witnessed several mergers and acquisitions. As at the end
of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.

The Unit Trust of India with Rs.44,541 crores of assets under management was way
ahead of other mutual funds. Fourth Phase – since February 2003 In February 2003, following
the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64
scheme, assured return and certain other schemes.

The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.

With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of consolidation and
growth.
 The graph indicates the growth of assets over the years.

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the
Unit Trust of India effective from February 2003. The Assets under management of the Specified
Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the
industry as a whole from February 2003 onwards.

Clarifications on the implementation of AMFI Guidelines on the Code of Conduct The circular
No. CIR/ARN-01/02-03 dated January 15, 2003 issued by AMFI prescribes certain guidelines
and modalities for the registration of the intermediaries and implementation of code of conduct
which are based on the SEBI Circular no. MFD/CIR/20/23230/2002 dated November 28, 2002
read with SEBI Circular no. MFD/CIR/06/210/2002 dated June 26, 2002.

The standing committee on AMFI Registration have deliberated a number of issues referred to it
regarding operationalising of the code of conduct and guidelines in a uniform manner. Based on
the recommendations of the standing committee, further clarifications as under are issued to
assist AMCs in implementation of the code of conduct and guidelines in a uniform manner:

1. Certification and Registration

At present there is some confusion about registration and obtaining ARN. Quite a few people
believe that being certified and being registered are one and the same. Therefore it is advised that
a common letter be issued by AMCs to their empanelled intermediaries on the lines of the draft
enclosed reiterating the need for registration with AMFI.

2. Identification of ‘own investment’ of the intermediary:

SEBI in its circular dated November 28, 2002 has inter alia stated that

all Mutual Funds and intermediaries are advised to follow it strictly and should
not indulge in any practice contravening it directly or indirectly i.e. paying
commissions in any form or by allotting intermediary codes to investors or their
associates for paying them commission on their own investments, etc.”
AMFI in its circular no.CIR/ARN/01/02-03 dated January 15, 2003 has also inter-alia
stated that

"All intermediaries fulfilling the empanelment criteria as provided hereunder shall be entitled to
receive brokerage for all business canvassed by them, except on their own investments.”

Further to the said circular, the AMCs are advised to follow the process as under in respect of the
same:

A. In case of joint holding, the first holder and the intermediary being common
would be identified as ‘own investment’.
B. To identify “own investments” an automated case insensitive string match would
be done. Following this a manual scrutiny would be used to identify cases where
addresses do not match.
C. No trail brokerage on “own investments” would be accrued after November 28,
2002
D. Own investments would not be considered for the purpose of calculating slab-
wise incentives & contest payments etc.
E. Brokerage reports would go with a disclaimer:
“Vide SEBI circular dated November 28, 2002, and AMFI’s subsequent
guidelines, intermediaries are not entitled to brokerage on their own investments.
While we have identified your own investments to the best of our ability and
eliminated payment, you are requested to let us know of any errors in either
identifying third party investments as your own or in not identifying some of your
own investments. Please note that receiving brokerage on own investments will be
a violation of the SEBI Regulation.”

3. Payment of brokerage to intermediaries

SEBI vide its circular dated November 28, 2002 has also stated as under:
“Mutual funds shall monitor the compliance of these guidelines and code of conduct by their
intermediaries in terms of business done across all mutual funds. In case of non-compliance, the
empanelling mutual funds may suspend further business and pay-out of commissions etc., until
full compliance by them.”

The AMCs had sought clarification regarding suspension of pay-out and after deliberation, it has
been decided as under, for payment of brokerage to intermediaries whose ARN status is
unknown post March 31, 2003:

A. In respect of funds mobilised on or prior to March 31, 2003 – Brokerage

(including Trail) will continue to be paid.
B. In respect of funds mobilised after March 31, 2003 – Brokerage shall be
computed but withheld for a maximum period upto June 30, 2003, within which
the concerned intermediary should obtain ARN and report the details to the funds.
Upon receipt of ARN status, the AMC shall examine whether the underlying
qualification – viz. Exam pass status for individuals and proprietorship concerns
and ARN registration itself for corporates & others – had been obtained prior to
March 31, 2003.
C. If the underlying qualification had been obtained from a date post March 31,
2003, then the intermediary shall be entitled to brokerage (including trail) only in
respect of funds mobilised from such qualifying date, and only for the period
following such qualifying date.

As, an example, if an individual intermediary advised the AMC of his ARN on

May 25, 2003 with an exam pass status of April 20, 2003, then he shall be entitled
to brokerage in respect of funds mobilised on and after April 20, 2003. Funds
mobilised between 1st and 20th April shall not be entitled to any brokerage.
Similarly if a corporate gets ARN Registration on May 25, 2003, then the
corporate will be entitled to brokerage (including trail) in respect of funds
mobilised on or after May 25, 2003.

4. Obtaining confirmation of registration with AMFI :

Each AMC may develop its own system of obtaining verification from their
intermediaries.Further, such AMCs may approach AMFI with their list of intermediaries for
obtaining confirmation of AMFI Registration and in such cases AMFI would get a verification
done for a fee that may be prescribed by AMFI.

The members are requested to kindly take careful note of these clarifications while implementing
the AMFI guidelines issued earlier.

C.G. Parekh

(Executive-Administration)
 Draft of the Letter to Intermediaries

Dear ,

AMFI Registration (Obtaining ARN – Photo Identity Card)

This is to bring to your notice that as per SEBI Guidelines it is now compulsory for all persons
engaged in sales and marketing of mutual funds to pass the AMFI Certification Test and also to
register with AMFI before March 31, 2003. All employees engaged in sales and marketing of
mutual funds of an intermediary organization must also register and obtain a photo identity card
with the ARN of their employer.

You can register at any office of CAMS, which is AMFI’s agent in this regard, or contact any of
our offices for assistance.

Kindly note that an intermediary who is not registered with AMFI cannot be paid brokerage.

We trust you will do the needful and inform us of your ARN immediately on receipt of this
letter, so as to avoid any stoppage of brokerage.

With regards,

(AMC)

To all AMFI members AMFI Certification

1. Revalidation of Certification under AMFI Mutual Funds Modules

You may be aware that at the time of launching AMFI Certification Programme a validity period
of 5 years was fixed for both the modules i.e. AMFI Mutual Funds (Advisors / Distributors)
Module Test as well AMFI Mutual Funds (Basic /Employees) Module Test. AMFI is frequently
receiving queries in respect of revalidation of certificates issued to the candidates who have
passed AMFI Mutual Fund modules. AMFI ARN committee after reviewing the matter has
decided as under:

2. Revalidation of AMFI Mutual Funds (Basic / Employees) Module:

This module envisages acquiring knowledge of the functioning of Mutual Fund without seeking
to become a fund distributor. It has been therefore decided to do away with validity period of 5
years in respect of AMFI Mutual Funds (Basic / Employees) Module and make the same valid
without any time limit for the present. Accordingly, those who are holding certificate for passing
AMFI Mutual Funds (Basic / Employees) Module Test may note that their certificate stands
automatically revalidated without any time limit for the present.
3. Revalidation of AMFI Mutual Funds (Advisors / Distributors) Module for employees of
Mutual Funds / AMCs:

Employees of Mutual Funds / AMCs who are engaged in selling and marketing activities
including interacting with the investors and who have passed the AMFI Mutual Funds
(Advisors / Distributors) Module Test should renew their certificates on expiry of 5 years
validity period either by passing the AMFI Mutual Fund (Advisors) Module Test or by attending
the refresher course conducted by Indian Institute of Capital Markets (IICM) within 6 months of
the expiry of the validity date as advised earlier. For the sake of clarity we would like to mention
that all the employees who are connected with the marketing activities as well as interacting with
investors should pass the AMFI Mutual Funds (Advisors) Module Test.

4. Renewal of AMFI registration Number (ARN):

The AMFI Registered Mutual Fund Advisors - ARMFA (the agents / distributors and employees
of corporate distributors) should apply for renewal of their ARN card on or within six months
prior to the expiry of the 5-year validity period. The renewal of ARN card is subject to either by
passing the AMFI Mutual Fund (Advisors) Module Test or by attending the refresher course
conducted by IICM within 6 months of the renewal of ARN card and furnishing a certificate to
that effect to AMFI.

The Certificate of Registration issued to corporate distributors has also a validity period of 5
years from the date of issuance. They are also required to apply for renewal of Certification of
Registration on or within six months prior to the expiry of validity date.

The detailed procedure of renewal of ARN card and Certification of Registration is available on
AMFI website www.amfiindia.com or can be obtained from the AMFI office.

Members are requested to take note of the contents of this circular and advise the concerned
persons accordingly.

With kind regards,

Yours sincerely,

A. P. Kurian

(Chairman)

AMFI Members Select Mutual Fund Or Click on AMC Name

below for Member Details
A. Bank
Sponsored
1. Joint Ventures - Predominantly
Indian
- Canara Robeco Asset Management Company
Limited
- SBI Funds Management Private Limited
2. Joint Ventures - Predominantly Foreign
- Baroda Pioneer Asset Management Company
Limited
3. Others
- IDBI Asset Management
Ltd.
- UTI Asset Management Company
Ltd
B. Institutions

- LIC Mutual Fund Asset Management Company

Limited
C. Private Sector
1. India
n
- Axis Asset Management Company
Ltd.
- Benchmark Asset Management Company Pvt.
Ltd.
- Deutsche Asset Management (India) Pvt.
Ltd.
- Edelweiss Asset Management
Limited
- Escorts Asset Management
Limited
- IDFC Asset Management Company
Limited
- JM Financial Asset Management Private
Limited
- Kotak Mahindra Asset Management Company
Limited(KMAMCL)
- L&T Investment Management
Limited
- Motilal Oswal Asset Management Company
Limited
- Peerless Funds Management Co.
Ltd.
 - Quantum Asset Management Company Private
Limited
- Reliance Capital Asset Management
Ltd.
- Religare Asset Management Company
Limited
- Sahara Asset Management Company Private
Limited
- Sundaram Asset Management Company
Limited
- Tata Asset Management
Limited
- Taurus Asset Management Company
Limited
2. Foreign
- AIG Global Asset Management Company (India) Pvt.
Ltd.
- BNP Paribas Asset Management India Private
Limited
- FIL Fund Management Private
Limited
- Franklin Templeton Asset Management (India) Private
Limited
- Goldman Sachs Asset Management (India) Private
Limited
- Mirae Asset Global Investments (India) Pvt.
Ltd.
- Pramerica Asset Managers Private Limited
3. Joint Ventures - Predominantly Indian
- Birla Sun Life Asset Management Company
Limited
- DSP BlackRock Investment Managers Private
Limited
- HDFC Asset Management Company
Limited
- ICICI Prudential Asset Mgmt.Company Limited
4. Joint Ventures - Predominantly Foreign
- AEGON Asset Management Company Pvt.
Ltd.
- Bharti AXA Investment Managers Private
Limited
- HSBC Asset Management (India) Private
Ltd.
- ING Investment Management (India) Pvt.
Ltd.
 - JPMorgan Asset Management India Pvt.
Ltd.
- Morgan Stanley Investment Management
Pvt.Ltd.
- Principal Pnb Asset Management Co. Pvt.
Ltd.
- Shinsei Asset Management (India) Pvt.
Ltd.