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The financial market is a huge platform offering varied investment opportunities to investors. Of the various options, mutual funds are popular because they require minimum involvement from investors. Mutual funds are also favoured because they diversify investments and provide a balanced risk-reward ratio to investors.
As of 2023, 54% of investors preferred mutual funds over other avenues. Since there is a focus and popularity of mutual funds among investors, it requires constant supervision to ensure fair practices. That is where the AMFI plays a significant role.
Today’s article discusses the significance and role of AMFI in the mutual fund industry.
The full form of AMFI is the Association of Mutual Funds in India. It is a non-profit organisation registered under the Companies Act. The statutory body is the regulator of mutual funds in India and aims to supervise the functioning of all Asset Management Companies (AMCs) registered under the Securities and Exchange Board of India (SEBI).
Established in 1995, AMFI has its headquarters in Mumbai. Currently, AMFI has 45 Asset Management Companies registered as members with it. According to the guidelines issued by SEBI, no company can sell mutual funds or units of mutual funds unless they register as members of AMFI.
The organisation is currently headed by the Chairman, Mr Navneet Munot, who is also the Managing Director and CEO of HDFC Asset Management Co. Ltd. He is supported by 14 other members on the board of directors, who hold management positions in various asset management firms.
Objectives and functions of AMFI
- The primary objective of AMFI is to provide its members with professional and ethical standards to be followed across all operations.
- AMFI aims to lay the guidelines and code of conduct for all asset management companies and related parties like agencies and brokers. All such parties must follow the guidelines while providing mutual fund services.
- AMFI is considered a wing of SEBI. Hence, it must report the details of activities about mutual funds to SEBI at regular intervals.
- AMFI also represents the Indian government and the Reserve Bank of India for all matters pertaining to the mutual fund industry.
- To create awareness and knowledge among investors, AMFI conducts various awareness programmes at regular intervals. The organisation also conducts research studies about different aspects of mutual funds and publishes these reports to aid investors in decision-making.
- The agenda behind AMFI’s functioning is to protect the interest of investors. To do so, AMFI conducts regular examinations and audits of the operations of its members. The organisation has the authority to cancel the mutual fund licence of members if malpractices are found.
Committees of AMFI
AMFI is divided into different committees with specialised teams, handling different supervisory functions. The objective is to ensure the protection of investors by giving due importance to each aspect of AFMI.
- ARN Committee
ARN stands for Application Reference Number. It is given to all registered members of AFMI. This committee is also called the Committee on Certified Distributors. It handles the activities related to AMFI’s members having an ARN.
- ETF Committee
ETF stands for Exchange Traded Funds. This committee specially deals with investments in ETFs.
- Financial Literacy Committee
As the term suggests, this committee focuses on providing financial literacy to investors. It works on increasing awareness among investors about mutual funds by conducting programmes, publishing reports, etc.
- Operations and Compliance Committee
The team focuses on AMFI’s operations to ensure that it is well within the legal boundaries and within the purview of the general laws of the country.
- Risk Committee
This committee is constituted to handle the risks around mutual funds. It takes care of risk assessment and measures to overcome such risks.
- Valuation Committee
The team works towards valuing the worth of mutual funds handled across different asset management companies. It also provides suggestions on valuable investments to AFMI and its members.
How to become an RIA under AMFI in India?
RIA stands for Registered Investment Advisor. Such advisors are people with specialised knowledge of the financial market, who provide investment advice to investors. They are required to clear certifications and register themselves with authorised bodies before starting investment advisory services.
In the mutual fund market, mutual fund distributors are considered RIAs. To be a mutual fund distributor, one must:
- Pass the certification test called AMFI Registered Mutual Fund Distributor (ARMFD) conducted by the National Institute of Securities Markets (NISM).
- Must be above 18 years of age.
- Must obtain an ARN upon passing the test and other eligibility requirements.
The financial market is subject to various risks, including the risk of fraud by intermediaries. Hence, understanding the role of the different regulators in financial markets is essential. This helps investors identify the right brokers and take proper steps when they notice inappropriate activities.
ARN stands for Application Reference Number. It is also called the AMFI code. It is a code given to all mutual fund distributors to show they are registered as distributors with the AMFI.
AMFI has 45 members as of now. Its member list includes bank-sponsored asset management companies, private asset management companies and other institutions. These members act as primary service providers of mutual funds and also allow distributors to act as intermediaries between them and investors.
Yes, AMFI is a part of SEBI. Though it is an independent body, it works under the supervision of SEBI. SEBI is the regulator of all the activities in the Indian Capital Market. Mutual funds work with the same products, too, but in a different form. Hence, AMFI is part of SEBI, as well.
Yes, ARN is mandatory for all mutual fund distributors. It acts as proof that the distributor’s services are legal and valid. Investors must check whether the distributors they are associated with have valid ARNs to ensure they do not tie up with illegal brokers.
The commission of mutual fund distributors depends on several factors, including the kind of funds, target investors, market situation, etc. Most of them usually charge between 0.1% to 2% of the investment value.