How to start an Asset Management Company (AMC)

Prabhat Nigam

10 Sep, 2022

Introduction

The Securities and Exchange Board of India (SEBI) which is the statutory body to supervise the capital markets has been assigned with the duty of supervision and management of the Asset Management Company (AMC) and also considers how the investment managers work. SEBI is also the main authority that looks after the activities of the fund managers.      

What is an asset management company?

Asset management companies pool funds from various kinds of investors and then invest them in those securities according to its investment plan. The company usually invests in the capital assets such as real estate, stocks, bonds etc. These investment decisions are taken by the managers called as Fund Managers whose responsibility is to do the necessary research work and then take the investment decisions. The fund managers then identify the investment options which are in consonance with the investment objectives of the fund. For instance, an equity fund makes investment in the shares of a company in order to maximize the return for his clients whereas a debt fund invests in securities such as government securities and bonds to ensure security of investment.  

Procedure for starting an Asset Management Company in India  

The SEBI ^[1] (Mutual Funds) Regulations, 1996 provide the procedure for starting an AMC.

Application by an Asset Management Company

An application for the incorporation of an Asset Management Company is made in Form D.

Appointment of an Asset Management Company

• The sponsor or, if the trust deed permits, the trustee shall appoint an Asset Management Company to which SEB has given approval.
• The appointment of a trustee can be terminated by 75% of the unit-holders of the scheme or by the majority of trustees.
• In case there is any change in the appointment of an AMC, the same shall need prior approval of the SEBI and the unit-holders of the scheme.

Eligibility criteria of Asset Management Company

In order to obtain the approval of AMC, the applicant needs to fulfil the following:

1. In case the asset management company is an existing AMC, then it must have a sound track record in terms of its net worth and profitability, general reputation and fairness in transactions. The AMC has to be a fit and proper person.
2. The directors of the company must have adequate professional experience in finance and in financial services related fields. The directors should not have been found guilty of moral turpitude or convicted of an economic offence or violation of any securities laws.
3.  Similarly, the Key personnel of the company must have not been found guilty of moral turpitude or convicted of an economic offence or violation of any securities laws or they should not have worked for any other AMC or Mutual Fund or Intermediary during the period when the registration of such AMC has been suspended or cancelled at any time by SEBI.
4. The board of directors of such an AMC should have at least 50 percent directors who are not associated in any manner with sponsor or any of its subsidiaries or the trustee.
5. The chairman of the company should not be a trustee of any mutual fund.
6. The net worth of such company should not be less than 50 crores. In case the sponsor cannot show profits after depreciation, interest and tax in 3 out of the immediately preceding 5 years and including the 5^th year, then the AMC should have a net worth which is not less than 100 crores and the company needs to maintain such net worth till it has profits for 5 consecutive years.

In case an AMC of a MF is only eligible to launch only infrastructure debt funds then the net worth of such company should not be less than rupees 10 crore.

• The net worth of AMC needs to be maintained by then company on a regular basis.
• SEBI on being satisfied that the above conditions are met, grant the approval for the Asset Management Company.

Requirements to start an Asset Management company in India

In case the investor is a company needs to obtain a board resolution stating that the company will be investing in asset/ assets. The following documents are required to invest in an asset management firm:

• Submission of Memorandum of Association (MoA), Articles of Association (AoA), Investment scheme of a Private Limited Company
• Submission of Directors Identification Number (DIN) of the companies’ directors
• Submission of Know Your Customer (KYC) documents
• Submission of any identity proof such as Aadhaar Card
• Submission of any address proof voter’s id, Driving license, passport etc
• Permanent Account Number (PAN) Card

Conclusion

To sum up, the minimum requirements for setting up an Asset Management Company have been provided under Chapter IV of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. The requirements in a nutshell include the following:

• Making application and taking approval from SEBI
• Maintaining prescribed capital and net worth of the AMC.
• Ensuring that the professional requirements such as expertise and experience in the field of fund management, securities management.
• Submission of copies of Aadhaar card, Passport, Application Form to SEBI along with the requisite fee. 

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