The Role of Mutual Fund Companies

With mutual funds investment in India gaining popularity, Asset Management Companies have gained importance. Also known as Mutual fund Companies, AMCs are companies that invest the money they have pooled from different investors in various securities, bonds, etc. that are capable of meeting the financial requirements of the investors. These companies guide the investors by providing them different investment options as well as helps in diversifying the investment portfolio. These companies earn by charging service fees from their clients.

The AMCs manage the assets, which is the money they have pooled from different investors, by appointing a fund manager for every scheme they offer. It is important for the investors, particularly the beginners to know that the objective of every scheme is different and the fund manager works towards keeping up the objectives. These schemes are known as mutual fund schemes. Since the Asset management companies are responsible for the administrative, financial, and accounting management of products under management in mutual fund schemes and under discretionary mandates, these companies play an important role. Even though, an investor cannot blame the company for under performance, they play a crucial role particularly in making an investment portfolio.

However, a mutual fund company is always liable for its business activities, even if it outsources some of them. As per law, their accountability is based on the idea of a management directive. Under the terms of the directive, the manager is accountable for making management decisions by buying and selling securities on behalf of the investors. In addition the management directive necessitates two main requirements:

  1. Treating customers impartially: The first requirement is that the asset management companies (and their managers) must act exclusively in favor of the interest of the investors. The company is duty-bound by the terms of regulations to fair dealing and ethical principles that the industry has set officially in various rules and regulations. Mutual Fund companies are subject to transparency requirements in regards to their customers and official recognition of the asset management business and the separation of this function from the custody function as well as from businesses that are expected to cause conflicts of interest, are essential to protect investors.
  2. A best-endeavours obligation: It is mandatory for every asset management company to have adequate financial resources (capital, etc.), technical capabilities (accounting system, analytical resources, performance monitoring, etc.) and human resource (adequate staffing levels for the business type and volume) to provide the investment services being offered.

The primary role of an asset management company is to manage the investment on behalf of their clients and invest in various mutual fund schemes that will work in favor of their clientele. It is also mandatory for them to adhere to the set rules and regulations.