How to start a mutual fund company in India?

Ashish M. Shaji

24 May, 2021

Understanding the concept of mutual funds is critical to start a mutual fund company in India. It involves collection of money that is put together by investors. This pool of money is capable of earning highest possible return. The fund is managed collectively by professional managers. In this article, we shall know about mutual funds and how you can set up a mutual funds company.

Mutual Funds Registration

Mutual funds is a collection of funds of investors invested by the fund managers. The return earned in the form of dividends is disbursed among investors as a return of their investment. Mutual fund and its registrations are regulated by the Securities Exchange Board of India (mutual fund) Regulation, 1996^[1].

The applicant should fulfil the following eligibility criteria of SEBI (Mutual Funds) Regulations 1996 for the grant of certificate of registration:

• The sponsor must have a sound track record and reputation of fairness and integrity in his past experience as well as business transactions. 
• It should possess the experience of carrying businesses and provide financial service for more than 5 years. The net years in all those 5 years should be positive;
• The sponsor should contribute 40% or more to the net worth of AMC;
• The sponsor must not be guilty of fraud or is not convicted of any offense involving moral turpitude;
• The sponsor shall appoint a mutual fund trustee.

Steps to start a Mutual Fund Company in India

The steps to start such company are as follows:

• Approval from SEBI

In order to start your own private mutual fund company in India, get approval from the Securities and Exchange Board of India and get the certificate of registration as well. Thereafter the applicant should get approval from the securities and exchange commissions. The individual should have enough operating capital to sustain the company.

• Explore Investment Companies

Mutual funds are investment companies that are registered with Security and Exchange Commission. It applies strict rules and provisions for mutual funds. An individual must set up a corporation in the form of LLC or LLP to start a mutual fund.

• Investment management

Get approval for institutional investment management from the Security and Exchange Commission for managing the mutual fund. An individual can get registration using Form ADV. Disclosures need to be made under this form regarding the size of portfolios an applicant wishes to manage.

• Arrangement of Fund

Fees, as well as operating costs, are some of the expenses of the mutual fund. Attracting the investor’s fund to build portfolio is the most considerable expense of any mutual fund. An individual requires a portfolio of massive amount for being a profitable company.

• Partner with shared trust

A mutual fund can partner with any shared trust that provides the board of directors, insurance and regulatory compliances. These companies assist small companies and start-up mutual funds to be competitive.

Registration of Mutual Fund Company with SEBI

The procedure to register mutual fund with SEBI is as follows:

• An applicant should apply for registration on Form A along with the non-refundable fee of 5 lakh rupees;
• Person holding 40% or more net worth of asset management company is the sponsor, and he is required to file an application;
• When a sponsor company applies for mutual fund registration, ensure that its MOA has a clause of object allowing to carry out the activities of the mutual fund;
•  The complete list of the group companies or associated companies registered with SEBI in any form has to be attached to the application;
• Details of the sponsor company if listed on the stock exchange shall also be specified;
• A declaration should be made stating that the director or any officer associated with the sponsor company is not found guilty of fraud or any offense involving moral turpitude;
• Trust deed has to be executed with setting up of the board of trustees comprising 2/3^rd of independent directors;
• Incorporate the asset management company and the trustee company and submit the MOA and AOA of these companies;
• After these companies are incorporated, submit auditor’s certificate certified by a CA who certifies that the sponsor has contributed 40% of the net worth of the asset management company and the asset management company has a net worth of not less than 10 crore rupees;
• The sponsor company should execute a trust deed and an investment management agreement;
• Complete details regarding the infrastructure facility should be filed with SEBI with the following information-
  1. Address and details of the office;
  2. Organization chart of the AMC;
  3. Profile of HR (including fund managers and equity research personnel).
• Appoint custodian
• During the process of registration, the applicant should provide all information or query raised by SEBI at any stage;
• If the application is completed, the certificate of registration shall be granted, and if the eligibility criteria is not met, then the authority may reject the same after stating the reasons for the same.

Conclusion

Mutual funds are less volatile thus is the safest option, and it also gives a good share of return as well. In case you have any query regarding starting a mutual fund company in India, consider contacting a professional.

Read our article: Requirements for Investment Advisors Registration with SEBI