Association of Mutual Funds in India (AMFI) and Insurance Regulatory And Development Authority

(IRDA)

GROUP:- I

SUBMITTED BY:- SUBMITTED TO:-

7. Deep Desai Mr. Lalit Tank

34. Ragini Patel

50. Ruchi Shah

Association of Mutual Funds in India (AMFI):-

What is mutual fund?What is mutual fund? 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 appreciations realized 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:

Introduction of AMFI:

Association of Mutual Funds in India (AMFI) was incorporated

on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies

(AMC) which has been registered with SEBI.

Association of Mutual Funds India, has helped the Indian

Mutual Fund Industry to enter into a healthy and professional

market, maintaining the market ethics and standards. It

attempts to promote the interests of both Mutual Funds and

unit holders.

Objectives:-Objectives:- To maintain a high professional and ethical standards in all areas of

operation of the industry. To recommend and promote the top class business practices and

code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management.

To interact with SEBI and works according to SEBIs guidelines in the mutual fund industry.

To do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

To develop a team of well qualified and trained Agent distributors. To promote proper understanding of the concept and working of

mutual funds for the investor. To disseminate information’s on Mutual Fund Industry.

Sponsors:- Sponsors:- 1. Bank Sponsored 2. Institutions3. Private sector

Regulation Of Intermediaries:-Regulation Of Intermediaries:-  World over intermediaries selling mutual funds are licensed and

regulated. Beginning made towards regulation-AMFI’s initiatives

• Launched Certification programme since July 2000 in association with NSE

• Certification made mandatory from November 2001• Launched registration of certified intermediaries as AMFI

Registered Mutual Fund Advisors (ARMFA)• Provided a broad set of guidelines known as AMFI Guidelines

and Norms for Intermediaries (AGNI)• Registration of AMFI Certified Agents made mandatory from

November 2002• Extensive training programmes being conducted countrywide

Regulatory Framework:Regulatory Framework:

Well Regulated - Strictly Regulated Industry.

Regulation is comprehensive, sensitive and supportive of healthy development

of industry. In most areas it matches with the best internationally.

Pro-active initiatives from the regulator. The Regulation is constantly reviewed

and amended periodically. Guidelines on a variety of subjects such as

valuation, benchmarking, disclosure issued regularly to match with best

practices.

Yearly inspection of all mutual funds – a support to the healthy development.

Self regulatory process is in built in Mutual Fund structure and set up.

While Mutual Fund functions in terms of the Trust Deed the AMC functions in

terms of the Investment Management Agreement as approved by SEBI.

Separate Auditors for Asset Management Company and for Mutual Fund.

Trustees are first level Regulators.

Their general and specific duties and responsibilities are well spelt out.

Predominance of independent (2/3rd) trustees - Role of independent

Trustees.

Quarterly compliance test and Certification by Trustees.

AMCs to record investment decisions and investment management process.

Partner relationship of SEBI with AMFI

Close interactive working style

AMFI acts as a catalyst and initiator of many new standards and

refinements of systems and procedures.

IMPROVEMENT IN OPERATIONAL AREASIMPROVEMENT IN OPERATIONAL AREAS

Standard Offer document with comparative data.

Refinement in the Calculation of NAV. 

Daily release of NAVs before 8.00 P.M and posting them on AMFI website.

Uniform methodology for Valuation of Non-Traded Securities – debt &

equities.

 Valuation of Government Securities.

 Setting up Valuation Committee at the AMCs level.

 Identification, Provisioning and Disclosure of Non-Performing Assets.

Disclosure standards - Mandatory disclosure of full portfolio twice a year.

Quarterly and even monthly disclosure of portfolio by many funds.

Keeping investors informed – Audited reports to be sent to investors

within a stipulated time – periodic communication to investors.

 Release of redemption cheques within stipulated time and payment

of penal interests for delayed payment.

 Advertisement guidelines- general and those relating to

Performance Advertisement.

 Adoption of technology for quicker service - Online Transaction.

 Suitable benchmarks being developed for different types of

schemes.

 Minimum level of risk management system being worked out.

ROLE AND ACTIVITIES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA

AMFI is the industry association of all mutual funds operating in India. It is not a Self-Regulatory Organization. It is a non-profit organization whose objectives are:

To promote and protect the interests of Mutual Funds and their unit holders.

To define and maintain high ethical and professional standards in the industry.

To enhance public awareness of Mutual Funds. To represent industry views and suggestions to the

Regulator, Government and the Central Bank

Insurance Regulatory And Insurance Regulatory And Development Authority (IRDA):-Development Authority (IRDA):-

Insurance Regulatory & Development Authority is regulatory and development authority under Government of India in order to protect the interests of the policyholders and to regulate, promote and ensure orderly growth of the insurance industry. It is basically a ten members' team comprising of a Chairman, five full time members and four part-time members, all appointed by Government of India. This organization came into being in 1999 after the bill of IRDA was passed in the Indian parliament.

Mission:-To protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.

Composition of Authority under IRDA Act, 1999- As per the section 4 of IRDA Act' 1999, Insurance Regulatory and

Development Authority (IRDA, which was constituted by an act of parliament)

specifies the composition of Authority.  The Authority is a ten member team consisting of

(a)   Chairman;     (b)   Five whole - time members;

(c)   Four part – time members, (All appointed by the Government of India)

Aim of Insurance Regulatory & Development Authority

“According to the IRDA Act, the aim of Insurance Regulatory & Development Authority is to look after the policyholders' interests, promote and ascertain the development of the insurance sector. “

Profiles Of Chairman And Members Of The Authority:-Profiles Of Chairman And Members Of The Authority:-

  Shri J. HariNarayan (Chairman)

  Mr. C. R. Muralidharan, Member(F&A)

  Mr. K. K. Srinivasan, Member(Non-Life)

  Mr. G. Prabhakara, Member(Life)

  Mr. R. Kannan, Member(Actuary)

Duties, Powers and Functions of IRDA

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA..(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

 Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, -

(a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

(b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;

(c) Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

(d) Specifying the code of conduct for surveyors and loss assessors; (e) Promoting efficiency in the conduct of insurance business; (f) Promoting and regulating professional organizations connected

with the insurance and re-insurance business; (g) Levying fees and other charges for carrying out the purposes of

this Act; (i) control and regulation of the rates, advantages, terms and

conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);

Expectations from Insurance Regulatory & Development Authority

The law of India Insurance Regulatory & Development Authority has certain expectations from Insurance Regulatory & Development Authority. These expectations are enlisted below:

To look after the benefits of the policyholders and provide them with fair treatment.

To specify, facilitate, supervise and implement high standards of unity, unbiased dealing, financial soundness and competency of those it of those it governs.

To contribute to the rapid development of the Insurance sector. To offer long term funds for speeding up economic development. To ascertain that the insurance clients get precise and correct

information regarding services and products. To assure rapid settlement of real claims. To forbid insurance frauds. To take necessary actions where required.

Impact Of IRDA On Indian Insurance

Sector The creation of IRDA has brought revolutionary

changes in the Insurance sector. In last 10 years of its establishment the insurance sector has seen tremendous growth. When IRDA came into being; only players in the insurance industry were Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC), however in last decade 23 new players have emerged in the filed of insurance. The IRDA also successfully deals with any discrepancy in the insurance sector.

Need For Regulatory OversightNeed For Regulatory Oversight Balance bet. Interests of insurers, insured and other members of the

public Ensure fair terms Look into the adequacy of disclosures & transparency Compliance with legal requirements.

Need To Review Existing File & Use Regulations 2001 Removal of tariff Need for more comprehensive approach Need to enforce more self-regulatory & governance norms

Need For Standardization Of Policies/Terms Helps - Consumer

Insurer

Coinsurer

Reinsurer

Intermediary

Third Parties Need for model policy/clauses at company level/industry level.

Model Insurance Covers Can Be Imposed By - Model Insurance Covers Can Be Imposed By - Legislation Regulation Self-regulation An effect of standard cover Derogation – i.e., if less than standard cover draw insured’s

attention Issue Of Tied Insurance Tied, ancillary, undisclosed insurance Goods/services purchased – insured charged but not

informed To be informed Cost of insurance to be disclosed Problem of excessive commissions to be avoided Refusal Of Cover Issues Non-acceptance of proposal Renew on special difficult, impossible terms Cancellation of cover

Legibility – Illegibility Issues In certain markets print sizes have been prescribed Comprehensibility/Simple English Regulation based on use of Flesch tests Other Consumer Issues Clauses/conditions Pre-existing Portability, etc English/vernacular Other friendly features Grievance Redressal