What is the Association of Mutual Funds in India (AMFI) & how does it work?

Mutual Fund Sahi [to] Hai,” but secure? Well, Franklin Templeton’s incident stands to prove that even mutual funds can be unsafe! That's why a regulatory authority is of the essence.

When you put your money in some random fund, what will be your major concern? Along with trust, it would be safety and security (at least to the extent mentioned in the terms and conditions). We would expect the fund houses to uphold the torch of ethics without letting the light dim off. But who would assure that the torch is well-maintained and is up to the set standards?

And that is exactly where AMFI comes into the picture. Here’s an article that’ll take you through the importance, roles, and responsibilities of the AMFI. Hop in.

Association of Mutual Funds in India (AMFI)

The Association of Mutual Funds in India (AMFI) is an industry standards organization that helps the investors of mutual funds. They basically set the rules of the game. So any foul play, fraud, forgery, or any other simple grievance witnessed by the investor can be taken to the referee, a.k.a the AMFI.

As SEBI is busy protecting the entire stock market, it has established AMFI in 1955 to regulate and keep an eye over the mutual funds market.

They work to protect and safeguard the investor’s interest and lay the foundation for the smooth function of the system. Hence, all those involved with mutual funds, from fund houses to intermediaries, are registered with AMFI. As of the recent data, there are approximately 45 AMCs (Asset Management Companies) registered with AMFI.

AMFI functions through 4 major departments; namely:

• Committee on operations and compliance 
• Committee on valuation 
• Committee on financial literacy 
• Committee on registration of certified distributors

Objectives and functions of AMFI

The AMFI has a set of objectives which are as follows:

• To represent SEBI on all issues related to the industry. 
• To lay down the rules, maintain high ethical standards and professionalism, and make sure the same is reflected in all the members' operations. 
• To keep in check any violations and regulate them. To take timely action in case of violation of investor interest.
• To raise awareness about the various benefits of the fund and its related matters. For instance -

(Source: amfiindia.com)

So if you encounter any issues with your mutual fund service provider, then AMFI could save your day.

Furthermore, they also undertake the following major activities (not an exhaustive list):

• They update the NAV (Net Asset Value) of various mutual funds on their website. This helps investors in making decisions related to investments and their portfolios.
• They research topics and matters related to mutual funds. This will enlighten the investors on details and facts related to the functioning of Mutual Funds, ultimately helping them make the right investment decisions. For instance, here’re some research data from AMFI’s website:

This graph states that the assets managed by India’s mutual fund industry have increased by a whopping 36% in a single year to reach Rs. 33 Lakh Crore in May 2021. Out of this, individual investors held a major chunk of Rs. 17.58 Lakh Crore (~50%), which itself has grown about 43% in a year as suggested by another chart from AMFI’s research below:

(Source: amfiindia.com)

Code of conduct for mutual fund providers

This is, in other words, a set of rules that the mutual fund providers and all others related to the same must take seriously to stay away from the death stare of AMFI. Some important rules are as listed below:

• Maintaining integrity and diligence in all the operations. 
• Ensure the investors are disclosed with all the crucial matters regarding their investment simply and understandably. 
• Uphold professionalism and keep up with the objectives of the fund. 
• Conflict of interest is not appreciated. 
• And finally, disclosing appropriate performance reports at the right time. 

AMFI Registration Number (ARN)

Any intermediary involved in the distribution of the fund should have registered with the AMFI. Following this, they will be provided with a unique identification number called the ARN (AMFI Registration Number). This will be allotted by the NISM (National Institute of Securities market) at the end of the training.

Those willing to get themselves registered are to go through an assessment or examination to get the number. They will have to renew this after every 6 months to exercise the full rights that come along. One can simply apply for the same online via the official website of AMFI.

So, how crucial is ARN for an investor?

Investing your hard-earned money with a fund house is no easy task. Numerous background checks are to be conducted to ensure that both the fund house and the fund itself align with your objectives. Hence, ARN allows investors to check on the intermediary with whom they are dealing.

In short, it helps investors to protect themselves from the various fraudulent brokers who try to lure them into pit holes. So, as an investor, it is your duty to stay away from anyone who does not hold a valid number or claim a duplicate one. Failure to do so might land you in serious trouble!

The Bottom Line

As we know, it is only recently that the field of investing has been appealing to large masses. The credit goes to the regulatory agencies such as AMFI and SEBI, which play a crucial role in safeguarding the interest of retail investors. These institutions ensure transparency, accountability, and trust, which has resulted in a healthy relationship among various stakeholders.

The role of such institutions is crucial for tapping the power of the financial economy and boosting economic growth. Let’s hope that fund houses adhere to the rules drafted by the AMFI for the betterment of the entire mutual fund industry. We can’t afford to have another Franklin Templeton incident in the future!

As a mutual fund investor, it’s imperative for you to understand what code of conduct your investment’s AMC is required to follow, and if not, how you can address the grievance to the AMFI.

Invest wisely!