AMFI: Role, Objectives, NAV & Mutual Fund Regulation in India

While investing in a mutual fund in India, a person will more often than not come across a term. AMFI. Few investors will understand the relevance of this term and what AMFI is, what they do and why they are significant.

This blog will define the mysterious world of AMFI in simple words and answer the following questions.

- What is AMFI?

- What is the ‘Association of Mutual Funds of India’?

- What are AMFI roles and objectives?

- What is the meaning of NAV?

- What is the mutual fund regulation in India?

- What is the importance of AMFI for investors and students?

What Is AMFI?

The full form of AMFI is the ‘Association of Mutual Funds of India’ and is a self-regulatory organization. AMFI role is to promote, regulate and develop the Mutual Fund Industry in India.

To put it simply, AMFI safeguards investors' interests and makes sure distributors and mutual fund providers follow a code of behavior. AMFI was established in 1995 and is governed by the Securities and Exchange Board of India (SEBI).

AMFI Explained

The Association of Mutual Funds of India (AMFI) is an industry body representing:

- All Asset Management Companies (mutual funds).

- Mutual Fund Distributors (MFDs).

- Registered Advisors (indirectly).

Every mutual fund in India is required to comply with:

- SEBI regulations concerning the fund.

- AMFI regulations and code of conduct.

AMFI makes sure the mutual funds are managed in a just, open and honourable way.

 

 

AMFI History

Prior to the inception of AMFI, there was:

- No standardization.

- No buyer awareness.

- Mutual fund mis-selling.

The core purpose of AMFI is to:

- Achieve Standardization within mutual funds.

- Protect Retail Investors with regulations.

- Enhance confidence of investors in Mutual Funds.

- Foster the long-term Sustainable Growth of the industry.

AMFI Importance

AMFI has significant importance in the case of both investors and distributors.

Primary Functions of AMFI:

1. Regulating Mutual Fund Distributors

AMFI ensures that only qualified persons are allowed to sell mutual funds.

Distributors are required to:

- Undertake and pass the NISM/AMFI examination.

- Abide by the AMFI Code of Conduct.

This leads to less mis-selling.

2. Educating Investors

AMFI carries out the following educational campaigns to teach the public about "Mutual Funds Sahi Hai".

• SIPs.

• Investing for the long term.

• Investment risks and benefits.
  
  

3. Establishing and Maintaining Standards of Ethics

AMFI regulates the nature:

• The interaction of the distributors with the investors.

• Commission disclosure practices.

• The overall marketing of services.
  
  

4. AMFI as a Link Between SEBI and the Industry

• Carries out the regulations of SEBI.

• Relays to SEBI the concerns of the industry.

• This facilitates better policy-making.
  
  

Objectives of AMFI

The AMFI objectives target investors' protection and the development of the industry.

• Advocate ethical practices in mutual funds.

• Safeguard the interests of the investors.

• Promote financial education.

• Ensure the transparency of NAV and returns.

• Create a Systematic Distribution Market.

Therefore, to summarise AMFI aims to guarantee safety and reliability in mutual fund investments.

NAV Meaning

NAV means Net Asset Value.

NAV Nature:

NAV is the price of a mutual fund in each unit.

NAV Formula:

NAV = (Total Assets – Total Liabilities) ÷ Total Units

Example

Take the example of a mutual fund’s total value which is ₹100 crore and the total units held are 10 crore.

NAV = ₹10

Why NAV Is Important for Investors

NAV shows:

• The worth of one unit of fund.

• Mutual fund buying and selling price.

• Historical data on fund gains and losses.

Important:

Having a low NAV should never be confused with being a low-quality fund. It is the growth of the NAV that generates the profit and not the NAV value in Rs.

AMFI’s NAV Disclosure

Trust and transparency are positively impacted when AMFI:

• Publishes NAV on its website.

• NAV is declared on a daily basis.

• NAV calculations are in accordance with SEBI guidelines.
  
  

Mutual Fund Regulation India. Who does what?

Three levels of regulation govern the Mutual Fund:

1. SEBI (The top regulator)

• Designs laws and regulations.

• Approves launching new mutual funds.

• Primary focus is on the investor's protection.
  
  

2. AMFI (The industry regulator)

• Enforces rules that are set up by SEBI.

• Supervision of distributors.

• Encourages best practices.
  
  

3. Asset Management Cos (AMCs)

• Responsible for users' funds.

• Initiates new funds.

• Publishes NAV.

• AMFI extends a supportive and supervisory role.
  
  

 

Advantages AMFI Provides Investors

Some of the ways AMFI profits clients include:

1. Minimise Mis-Selling

Only trained and certified distributors can sell mutual funds.

2. Better Transparency

AMFI provides clear expectations about:

• Returns.

• Risk.

• Expense ratio.
  
  

3. Free Learning

AMFI provides free resources on:

• SIP.

• Equity funds.

• Debt funds.

• Goal-based investing.
  
  

AMFI Registration and Certification

To get the ability to sell mutual funds, an individual will have to:

1. Take the NISM Series V-A exam.

2. Register with AMFI.

3. Abide by the AMFI Code of Conduct.

This guarantees professional virtue.

AMFI Code of Conduct (Why it is Crucial)

Some of the things the AMFI Code of Conduct guarantees include:

• Advising truthfully.

• Avoiding false promises regarding returns.

• Disclosing all risks involved.

• Maintaining ethics.

Some consequences include Fines and Cancellation of their licence.

AMFI vs. SEBI: What is the Difference?

Aspect	AMFI	SEBI
Nature	Self-regulatory body	Statutory regulator
Authority	Industry discipline	Legal enforcement
Focus	Distributors & awareness	Investor protection
Power	Limited	Legal & punitive

Both of them operate in conjunction with one another in order to regulate mutual funds.

Importance of AMFI for Students

For students taking finance courses:

• AMFI teaches about the workings of mutual funds.

• AMFI teaches the discipline of investment.

• AMFI educates students in financial regulation.

Most students study this part in:

• Finance classes.

• Certifications of mutual funds.

• Education on personal finance.

Common AMFI Myths

• AMFI governs the stock market.

• AMFI determines the returns of funds.

• AMFI provides guaranteed returns.

The truth:

AMFI governs the processes and behaviours, not the returns.

The Way the Mutual Fund Industry Changed Because of AMFI

Then AMFI:

• Lowtrust.

• High mis-selling.

• Low awareness.

Now AMFI:

• A culture of regular investment via SIP.

• Increased participation from the retail investors.

• The volume of mutual fund AUM grew unprecedentedly.
  
  

Mutual Fund Regulation India - Importance of AMFI

AMFI helps in achieving the three main objectives of:

• Safety of the investors' money.

• Protection of investors by fair and ethical practices.

• Sustainable growth of the sector in the long run.

• AMFI helps in achieving this fine balance in the system.
  
  

AMFI Summary in One Sentence

AMFI is the pioneering institution for the ethical distribution of mutual funds and educating the investors of India.

 

Conclusion

Everyone knows the value of AMFI, NAV, and mutual funds in India. Regulation is most important to the AMFI also doesn't sell any funds or give any promises of returns. AMFI just makes sure that investing in mutual funds is fair, transparent, and disciplined.

Even though AMFI works behind the curtains, the trust and participation in mutual funds in India and the impact is growing. If we see SEBI in the mutual fund industry as the policeman, AMFI stands parallel as the teacher, educating the industry and disciplining it for the long-term benefit of the investor.

 

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.