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MF services

After Reading this, you will be conversant with

  • Service provisions of Mutual funds
  • Investor oriented scope of Mutual funds
  • AMFI


Financial Mutual Funds Launch schemes to cater to the need of the different categories of investors. They provide special services in addition to the returns which Mutual Funds offer to the investors. These services serve to attract the investors to invest their savings in Mutual Funds that meet their various needs. For example, regular income plan, savings and reinvestment plans, health insurance schemes, equity-linked savings plans for tax exemption purposes, etc.

Some of the important services offered by Mutual Funds globally are discussed below:

 Saving scheme

Voluntary saving plan can be added to buy the units of Mutual Funds through which an investor can on monthly or quarterly basis.

The important features of such plans are:

  1. Through voluntary saving plans, the investor has the option and free will to contribute any sum at any time on regular or irregular basis.
  2. Alternatively, savings could be made through contractual saving plans pursuant to some agreement envisaging a long-term investment plan binding upon the investor.
  3. In the USA, these plans are quite in vogue and are under regulation of Securities Exchange Commission. These plans charge investors with substantially high front-end loads. An investor is required to pay commission over the life of contract recovered in advance in the initial year of the contract though initial installments in the form of front-end loads.
  4. The investors, who drop out from the contractual plans as stated in (b) above, remain at a disadvantage as the prepaid commission is not refunded to them. Securities exchange commission has made rules requiring Mutual Funds to refund the full amount of prepaid commission to investors if the investor cancels the plan within 45 days and 85% of the amount, if the inventor cancels within 18 months of joining the saving plan. Those who cancel the commitment after 18 months get no refund.

Automatic Reinvestment Plan

Like in the US, UTI India has also started this plan where the amount of dividend and other income accrued on mutual fund investments is automatically reinvested in purchasing additional units or shares in the open-ended funds. Other Mutual Funds in the public sector have followed suit.

Regular Income Plan

Investors enjoy Systematic withdrawal of their money locked in mutual fund investments in the form of regular income by way of monthly or quarterly installments to meet their regular financial needs. Initial investment in such plans is stipulated which carries interest at the specified rate. The repayment installments are so formulated as to pay out the earnings first and then the principal amount.

Shifting Advantage or Conversion Privileges

Many mutual fund companies offer different investment plans for investors and many provide the facility to investors within the family of the plans to shift or convert or exchange them afterwards from one plan to another at nominal costs or at no costs subject to tax advantages, if any, available to the investors.

Retirement Pension Plans

Mutual funds are now very much linked retirement pension plans. They facilitate setting up by individuals and companies, the tax deferred retirement plans for self or their employees respectively. Regular monthly income plans in India offered by UIT and order Mutual Funds established by nationalized banks are alike.

Insurance Plan

Mutual Funds offer in the USA a relatively new service in the form of insurance program that protects an investment in mutual fund against a long-term loss. The insurance cover is available for a period ranging from 10 to 15 years, for the amounts ranging from Rs. 3,000 to Rs. 2, 00,000 at a premium of about 6% of the insured sum for a period of 10 years. In dollar terms the insurance of a sum of Rs. 1, 00,000 will cost Rs.600 for a period of 10 years. One has to assess the loss on the insured sum. Capital loss of Rs. 10,000 will be completely met by insurance company to cover up the insurance sum of Rs.1, 00,000.

In India, LIC Mutual Fund and UTI have come out with schemes providing life insurance covers to the investors.

Cheque-Writing Facilities

In the USA, all Mutual Funds offer to the investors the facility to draw the money invested in Mutual Funds. These cheques are drawn and paid through the funds’ banks. This service is rendered frequently by all Mutual Funds in the USA. In its mid-term review of monetary and credit policy for 1999-2000, the RBI permitted Money Market Mutual Funds (MMMFs) to offer cheque writing facility to the unit holders. In response, some Mutual Funds introduced limited cheques writing facility by allowing their unit holders to issue cheques against a savings account with a designated bank. This policy permitted scheduled commercial banks to offer “cheque writing” facility to Gilt funds and those liquid income schemes of Mutual Funds which predominantly (not less than 80% of the corpus) invest in money market instruments.

To conclude, real service to investors is done by Mutual Funds by offering the schemes which directly offer income, capital gains and solution to their personal individual problems. For this purpose, Mutual Funds should maintain a marketing research wing always looking for new opportunities and conceiving innovative schemes to meet the conceptual needs of the investors apart from systematic income and gains in money terms.



Structural Pattern

Mutual Funds, usually formed as trusts, generally involve three parties viz.,

  • Settler of the trust or the sponsoring organization.
  • The trust formed under the India Trust Act, 1882 or the trust company
  • Fund managers or the merchant banking unit.
  • Custodians.

While in the USA and other countries an “arms length” distance is maintained between settlers, and fund managers, in India, very often, there is an overlapping of roles. For example, in the case of canbank Mutual Funds, Canara Bank is the settler or sponsor, members of Canara Bank’s board form the trust company as trustees and the subsidiary of Canara Bank Canbank Financial Services Led., serves as fund managers.

Let us take a look at the organization and management pattern of Unit Trust of India (UTI) vis-à-vis the organization and management pattern of some other Mutual Funds established by banks or insurance companies.

Organization and Management Pattern of UTI

UTI has a full-time Chairman with an Executive Trustee reporting to him. The Executive Trustee looks after the Corporate Office, Zonal Officers and Branch Offices. Mutual Funds are managed through various well organized and staffed department viz.,

  • Business Development and Marketing Department which formulates market schemes and manages the network of branches and agents;
  • Operations and Vigilance Department which divides the scheme-wise responsibilities of branches, organizes the computer network for investor services, issues certificates and repurchases units;
  • Investment Department which makes investments in short-term and long-term debt securities:
  • Market Operation Department which invests in equity shares, convertible securities and engages in secondary operations;
  • International Department which looks after the offshore funds; and
  • Support Departments like Accounts, Research and Planning, Personnel and Administration, etc.

 Parties to Mutual Fund Trust

As is common to any trust covered under the India Trust Act, the parties involved in a mutual fund trust are the sponsor or settler, the trustees, the investor as beneficiary and trust property. In a mutual fund trust, subscription made by the investor to the scheme, investments made by the mutual fund of the moneys received into capital market or money market instruments, the income received from such investments after incurring expenses incurred by the trust and other assets bought by the mutual fund out of the investors money are trust property and the investors are entitled to all these properties as per the terms of the scheme and the provisions of the trust deed. Existing organization of some Mutual Funds is shown in Table 1.


Table 1: Existing Organization of Some Mutual Funds

Sponsor/s Name of the fund trustee Asset management company custodians
State bank of India SBI Mutual Fund SBI Mutual Fund trustee company private limited SBI Fund management private limited. HDFC Bank Ltd.
Bank of Baroda (BOB) ,Punjab National Bank (PNB) and State Bank of India(SBI)AND LIFE Insurance Corporation of India (LIC) UTI Mutual Fund UTI trustee company private limited. UTI asset management company ltd Stock Holding Corporation of India and HDFC Bank Ltd.
Life Insurance Corporation of India LIC Mutual Fund LIC Mutual Fund trustee company private limited. LIC Mutual Fund asset management company ltd Stock Holding Corporation of India and HDFC Bank Ltd.
Prudential Corporation Plc and ICICI Limited Prudential ICICI Mutual Fund Prudential ICICI trustee limited Prudential ICICI asset management company ltd HDFC Bank Ltd
Principal Financial Services Inc., USA Principal Mutual Fund Principal trustee company private limited. Principal pnb asset management company pvt. Ltd. Citibank, Mumbai.
Templeton Intemational Inc. Franklin Templeton Mutual Fund Franklin Templeton services pvt. Ltd. Franklin Templeton asset management company pvt. Ltd. Citibank, Mumbai
Deutsche Assets Management (Asia) Limited Deutsche Mutual Fund Deutsche trustee services India pvt. Ltd. Deutsche asset management company pvt. Ltd. JP Morgan Chase Bank
J.M Financial and Investment Consultancy Services Pvt Ltd. JM Financial Mutual Fund JM Financial trustee company private ltd. JM Financial management private limited. JM financial Ltd.


Till recently, in all the mutual funds including UTI, the sponsors, trustees, fund managers and custodians were the same persons with no difference of organization and management. But after the issue of certain guidelines by the government of India on 14.2.1992, sponsors, trustees, custodians and fund manager are to be separate entities with independent legal standing. This has been done with a view to eliminate mismanagement of Mutual Funds.

Let us take a closer look at the 4 constituents of Mutual Funds, i.e., sponsors, trustees, fund managers and custodians.


The sponsor of a mutual fund can be a public limited or private limited company registered under the companies Act, 1956. One or more public and limited companies can jointly sponsor a mutual fund. The following are the requirements of a competent sponsor.


Track Record

The sponsor company should have a track record of 5 years, established through its audited final accounts exhibiting consistency in operating profits, dividend payments, rising cash accruals, etc.

General Reputation

The sponsor should have a good general reputation having directors with clean business records.

Fairness in all Business Transaction

The sponsor company should have good credit record, default-free dealings with suppliers of material, good and tension-free personal relation and should not have any outstanding dues with bankers, creditors, income tax authorities. The sponsor should contribute at least 40% to the net worth of the asset management company.



In the establishment of mutual fund trust, the main role is played by the sponsors both the trustee and the fund managers or the asset management company have to be located and appointed by the sponsor. Alternatively, the sponsor has to appoint Board of Trustees and incorporate an asset management company. It has to submit to securities Exchange Board of India (SEBI) the drafts of the Trust Deed of creation of mutual fund trust with particulars of the persons consenting to be the Trustees both from the sponsor company and the outsiders. It has also to submit draft Memorandum and Articles of Association of Asset Management Company to SEBI with particulars of Directors, i.e., the persons to be appointed from the sponsors’ Board and those to be taken from outside. It has also to suggest the name and particulars of the custodians to the engaged for the mutual fund. Once the mutual fund trust is authorized by SEBI, the role of sponsor diminishes as it is the Trust that will interact with SEBI.

MUTUAL Fund Trust or Trustee

Mutual Fund Trust is created by the sponsors under the India Trust Act, 1882 which is the main

body in the creation of Mutual Fund Trust.

The main functions Mutual Fund Trust are as follows:

  • Planning and formulating mutual fund schemes.
  • Seeking SEBI’S approval and authorization to these schemes.
  • Marketing the schemes for public subscription.
  • Seeking RBI approval in case NRIs’ subscription to mutual fund is invited.
  • Attending to trusteeship functions. This function as per guidelines can be assigned to separately established trust companies too.

In the absence of such companies, existing debenture trustees, banks and financial institutions may be contracted to act as mutual fund trustee with the approval of SEBI. Alternatively, a separate Board of Trustees consisting of individuals of sufficient repute and experience may act as mutual fund trustees. Two third of the trustees shall be independent persons and shall not be associated with sponsors or be associated with them in any manner whatsoever. The trust company, companies as aforesaid or the Board of trustees including the eligibility of each member shall be intimated to SEBI as per the Guidelines.

Each trustee shall file the details of his transactions of dealing in securities with Mutual Fund on a quarterly basis. Trustees are also required to submit an annual report to the investors in the fund.


Fund Managers or the Asset Management Company (AMC)

The role of fund managers is highly significant in the mutual fund operations. So far, this role is being played by the mutual funds through the subsidiary company of the sponsoring bank or inside the banks through department or division. Under the Guidelines, fund managers will have to be a separate company specialized and skilled in the investment activities.

AMC has to discharge mainly three functions as given below:

Taking investment decisions and making investments of the funds through market dealer/brokers in the secondary market securities or directly in the primary capital market or money market instruments:

Realize fund position by taking account of all receivables and realizations, moving corporate actions involving declaration of dividends, etc. to compensate investors for their investments in units; and

Maintaining proper accounting and information for pricing the units and arriving at Net Assets value (NAV), the information about the listed schemes and the transactions of units in the secondary market. AMC has to give feedback to the trustee about its fund management operations and maintain a perfect information system.

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

  • This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry.
  • It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.
  • AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.
  • Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
  • It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.
  • AMFI undertakes all India awarness programme for investors inorder to promote proper understanding of the concept and working of mutual funds.
  • At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.


  • Knowledge of mutual fund scheme can cater to unique composition of portfolio.
  • There is great need for knowledgeable service providers
  • AMFI is a framework which works in co-ordination with SEBI(brain child of SEBI) to provide transparency and fairness



  • List down risky and risk free schemes of mutual funds.
  • What is the role of fund manager?
  • What is a sponsor and Party to a mutual fund?

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