WHAT FORMS AN MUTUAL FUND?

Fund managers and distributors are just the face of a mutual fund. There are other entities in the background that make up and manage a fund

The main constituents of a mutual fund are its sponsor, trust, asset Management Company, custodian, and registrar agent. All of these must be registered with the market regulator, Securities and Exchange Board of India ( Sebi).

SPONSOR

The promoter of a mutual fund is called a sponsor. Sebi’s mutual fund regulations of 1996 required a sponsor to have experience of a at least five years in the financial services business, three years of which shold have been profitable. The sponsor is responsible for getting the MF registered with Sebi. It creates the asset management company and the trustee company, contributes towards their capital and appoints the boards of both these companies with the approval of Sebi.

TRUST

The trust holds the investors’ money in fiduciary capacity. The investors are the beneficial owners of the assets. The trustees ensure that the fund is managed according to the investment objective of the scheme and that investors’ interests are protected. Trustees are paid a fee for their service. At least two-thirds of the directors on the board of trustees are required to be independent trustees.

ASSET MANAGEMENT COMPANY

The AMC creates and markets the products, collects and manages the funds held in the trust according to the investment mandate of a scheme. It is responsible for all operation-related activities. AMCs have to have a net worth of at least Rs 10 crore. Half of the directors on the a fee for its services. One AMC can work for only one fund and cannot do any other business.

CUSTODIAN

The securities and assets of a fund are in the custody of a custodian. It is independent of the sponsor and is appointed by the board of trustees to receive and deliver securities either directly or through a depository company. They charge a fee, which is included in the recurring expenses of a fund. Unlike an AMC, a custodian can function for many companies at the same time.