Knowing the function of an AMC in mutual funds An Asset Management Company (AMC) is the company that manages mutual fund schemes on your behalf, from strategy to day-to-day management. Even though you may be inclined to consider your investment in terms of the AMC brand, the key point to remember is that the AMC does not "own" your money. Your mutual fund units are in fact held in the name of a custodian and managed by a board of trustees. Institutional safeguards such as these guarantee that your investments are ring-fenced from any operating or financial incidence of trouble with the AMC.
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What causes an AMC to shut down or withdraw An AMC can shut down or wind up its operations on account of financial non-viability, non-compliance, mergers and acquisitions, or changes in strategic priorities. In such a situation, the AMC notifies the SEBI and follows a prescribed exit approach. It involves transferring the existing mutual fund schemes to some other SEBI-regulated AMC or shutting down some schemes in entirety if an appropriate transfer facility is not feasible. While doing so, the investors are suitably informed and given choices, and the transparency is maintained.
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Your investments are safeguarded under SEBI regulations SEBI's regulation of mutual funds provides investors with several layers of protection in the event of failure of an AMC. All schemes of the mutual funds are run under a trust setup, and there is an independent board of trustees safeguarding investors' interests. These trustees are independent of the AMC and are also under a mandate to act in the best interest of the investors. Even in the event of failure of the AMC, the trust continues and the schemes get shifted to another AMC or get wound up with reasonable compensation to investors in terms of the fund's Net Asset Value (NAV).
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Transfer of funds to a different AMC In majority of shutdown instances, the AMC will seek to offload its schemes to another fund house with SEBI’s approval. Investors are informed about the shift, and the acquiring AMC manages the funds. Even though the scheme name and the fund manager are changed, your investment remains intact unless the underlying investment strategy is altered. Investors may also redeem their units without exit load if they object to the change in management.
What should you do as an Investor? If your AMC announces merger or closure, do not panic. Read the notice given by the AMC or in the newspapers very carefully. Look for changes in the scheme structure, fund management, or investment goals. If you are still not clear about how the changes will impact your goals, consult a financial planner. You are free to redeem or transfer your money within the transition period, generally without fee or exit load.
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Knowing your rights makes you master your own destiny The Indian mutual fund framework is designed to protect investor interest even in adverse circumstances like the closure of an AMC. Trustee oversight, regulatory monitoring, and the trust-based character of the mutual fund ensure that your money is not at the mercy of the operational fate of the AMC. Being aware of your rights and the choices available to you at such times puts you at ease and well-prepared to take decisions on your portfolio.
