Securities and Exchange Board of India on 10 August suggested a review of organizational

structure of mutual funds following sharp growth in the industry.

Sebi wholetime member T C Nair said there was need for a review in the organization model
currently followed by mutual funds as the industry was seeing rapid growth in assets under
management.

It was not due to any shortcoming in the system that the review was being sought, but there is
always a scope for improvement, Nair said on the sidelines of a seminar organised by Indian
Chamber of Commerce.

Currently, mutual funds in the country operate in a 20-year old three-tier structure. In the
pyramid structure, there is a sponsor at the top, followed by a trustee body and then the asset
management company.

Association of Mutual Funds in India (Amfi) chairman A P Kurien said as it was an old system a
relook at it compared to other international practice might give clues for improvement.

In some developed markets, there is a two-tier organisation structure.

“There could be one trustee body for all MF schemes instead of trustees for each fund at present.
These are possibilities of the review,” Kurien said.

Nair did not mention any timeframe for the review to be complete. However, review will be done
in joint consultation with Amfi.

On the subject of Self Regulatory Organisation, Kurien said “we are studying and discussing it”.

“Amfi is in the process of sitting with Sebi and identifying responsibilities that they want us to
take. So the process is on, but it will take some time. Sebi will not pay for our work as an SRO.
Members will have to fund it,” Kurien said.

Nair also recommended a dedicated distribution agency for mutual funds schemes in line with
Life Insurance Corporation.

“There should be a dedicated distribution agency for either each AMC or of all companies,” he
said.

However, it was just at the concept stage and nothing had been formalised, he said.

Sebi was not happy with the distribution system the MF followed. It has come out with a Code of
Conduct for MF intermediaries.

Asked about real estate mutual fund regulation, Nair said a meeting would be held on 14 August
with the Institute of Chartered Accountants of India on accounting standards.
Nair criticised the MF industry for not being able to penetrate the rural market and not
developing social security schemes.

RISK - RETURN ANALYSIS

CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realised are shared by its
unit holders in proportion to the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at
a relatively low cost. The flow chart below describes broadly the working of a
mutual fund:

RGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organisational set up of a mutual fund: