Structure Of Mutual Funds In India.docx

STRUCTURE OF MUTUAL FUNDS IN INDIA:

In India, the mutual fund industry is highly regulated with a view to imparting  operational transparency and protecting the investor's interest. The structure of a  mutual fund is determined by SEBI regulations. These regulations require a fund to be established in the form of a trust under the Indian Trust Act, 1882. A mutual  fund is typically externally managed. It is now an operating company with  employees in the traditional sense.

Instead, a fund relies upon third parties that are either affiliated organizations or  independent contractors to carry out its business activities such as investing in  securities. A mutual fund operates through a four­tier structure. The four parties  that are required to be involved are a sponsor, Board of Trustees, an asset  management company and a custodian.

Sponsor: A sponsor is a body corporate who establishes a mutual fund. It may be  one person acting alone or together with another corporate body. Additionally, the  sponsor is expected to contribute at least 40% to the net worth of the AMC.  However, if any person holds 40% or more of the net worth of an AMC, he shall  be deemed to be a sponsor and will be required to fulfill the eligibility criteria  specified in the mutual fund regulation.

Board Of Trustees: A mutual fund house must have an independent Board of  Trustees, where two­thirds of the trustees are independent persons who are not  associated with the sponsor in any manner. The Board of Trustees of the trustee 

company holds the property of the mutual fund in trust for the benefit of the unit­ holders. They are responsible for protecting the unit­holder's interest.

Asset Management Company: The role of an AMC is highly significant in the  mutual fund operation. They are the fund managers i.e. they invest investors'  money in various securities (equity, debt and money market instruments) after  proper research of market conditions and the financial performance of individual  companies and specific securities in the effort to meet or beat average market  return and analysis. They also look after the administrative functions of a mutual  fund for which they charge management fee.

Custodian: The mutual fund is required by law to protect their portfolio securities  by placing them with a custodian. Nearly all mutual funds use qualified bank  custodians. Only a registered custodian under the SEBI regulation can act as a  custodian to a mutual fund.

Over the years, with the involvement of the RBI and SEBI, the mutual fund  industry has evolved in a big way giving investors an opportunity to make the most of this investment avenue. With a proper structure in place, the industry has been  able to cater to more number of investors. With the increase in awareness about  mutual funds several new players have joined the bandwagon.

According to an anonymous whistleblower Kochhar allegedly favoured Videocon Group in lending practices.[37][38] ICICI Bank said it has decided to institute an independent enquiry into the allegations. [39] On March 29, The Indian Express first reported that Videocon group promoter Venugopal Dhoot provided crores of rupees allegedly to NuPower Renewables Pvt Ltd (NRPL), a firm he had set up with Chanda Kochhar’s husband Deepak Kochhar and two relatives six months after the Videocon group got Rs 3,250 crore as loan from ICICI Bank in 2012. He allegedly transferred proprietorship of the company to a trust owned by Deepak Kochhar for Rs 9 lakh, six months after he received the loan from ICICI Bank. The Videocon account was declared an NPA(Nonperforming Assets) or a bad loan in 2017 according to the Indian Express.THE INCOME Tax department is also probing the acquisition of the current family residence of Chanda Kochhar, the CEO and MD of ICICI Bank, in South Mumbai by her husband Deepak Kochhar in a complex transaction involving firms linked to Videocon Group, reported the Indian Express. The Indian Express also reported similar transactions and favourable loans granted by Kochhar allegedly to Essar group which was also later classified as NPA's . These were allegedly bought to the attention of Prime Minister Narendra Modi's office repeatedly by investor Aravind Gupta but action seeems to have been allegedly initiated only after the media particularly 'The Indian Express' reported on it.Chandra Kochhar subsequently quit ICICI bank following these allegations and is currently being investigated.[40] [41][42] As per the latest news by India Today on 24th of Jan 2019 Chanda Kochhar, her husband Deepak Kochhar and Videocon MD Dhoot have been booked by CBI under IPC 420 for cheating. On 24 January 2019, Chanda Kochhar, industrialist Venugopal Dhoot, and Chanda's husband Deepak Kochhar, were named in a CBI FIR for cheating and defrauding ICICI Bank to the tune of Rs 1,730 crore.CBI detailed the modus operandi and charged them with offences punishable under Section 120B (conspiracy) and 420 (cheating) of IPC, section 7 (taking gratification) and 13(2) (criminal misconduct) read with 13(1)(d) (pecuniary advantage) of the Prevention of Corruption Act.[43]