📘 9.1 Structure of Mutual Funds
📌 Definition
Mutual funds in India are structured as trusts, where investors are the beneficial owners of the assets. The structure includes a sponsor, trustee, and asset management company (AMC) as key components in managing the fund.
💡 Mutual Fund Structure
📈 The Sponsor
The sponsor promotes the mutual fund, sets up the AMC, appoints the trustees, and seeks regulatory approval from SEBI.
🔑 The Trustees
The trustees act on behalf of investors, protecting their interests and ensuring compliance with SEBI regulations. They are appointed by the sponsor and have fiduciary responsibilities.
📘 9.2 Sponsors
📌 Definition
The sponsor is the promoter of the mutual fund who sets up the trust and the AMC. Sponsors must meet eligibility criteria as defined by SEBI.
💡 Key Sponsor Criteria
🔑 Track Record
At least 5 years’ experience in the financial services industry with a positive net worth for the last 5 years.
📊 Net Worth Requirement
The sponsor must contribute at least 40% of the AMC’s net worth and meet specific financial criteria.
📘 9.3 Trustees
📌 Definition
The trustees are responsible for holding the mutual fund’s assets in trust for the unit holders. They oversee the activities of the AMC and ensure that the fund is managed in accordance with the trust deed and SEBI regulations.
💡 Role of Trustees
📜 Fiduciary Responsibility
Trustees have fiduciary duties to protect the interests of unit holders and oversee the AMC’s operations. Two-thirds of the board members must be independent of the sponsor.
📑 Trustee Reports
Trustees submit Half Yearly Trustee Reports (HYTR) to SEBI, reporting any non-compliance and corrective actions taken.
📘 9.4 Asset Management Company (AMC)
📌 Definition
The AMC manages the mutual fund’s investments. It is responsible for fund management, including the creation of products, mobilization of funds, and reporting to trustees and investors.
💡 Key Functions of AMCs
💼 Investment Management
AMCs are tasked with managing funds in line with the investment objectives of each mutual fund scheme. They charge a fee, typically a percentage of AUM.
📊 Reporting
AMCs are required to submit quarterly reports on their activities to trustees and SEBI. They must ensure compliance with SEBI regulations.
📘 9.5 Custodians
📌 Definition
Custodians hold and safeguard the assets of the mutual fund, ensuring proper record-keeping and transaction settlement. They are appointed by trustees and play a critical role in ensuring the safety of fund assets.
💡 Role of Custodians
📦 Safekeeping of Assets
Custodians hold securities, gold, silver, and other assets on behalf of the mutual fund. They are responsible for settling securities transactions and managing corporate actions.
🔒 Independence
Custodians must be independent of the sponsor, ensuring that they do not have any conflict of interest with the mutual fund’s operations.
📘 9.6 Constituents and Service Providers
📌 Definition
AMCs (Asset Management Companies) manage the portfolio of a mutual fund, with several key functions handled in-house and others outsourced to service providers. These service providers, including custodians, RTAs (Registrar and Transfer Agents), and others, play essential roles in ensuring smooth operations.
💡 Core Functions of AMCs
📊 Fund Management
The core function of an AMC is fund management, which cannot be outsourced. It involves managing the investments and ensuring that the fund’s objectives are met.
📈 Outsourced Functions
Other functions such as investor records, fund accounting, and valuation may be outsourced to service providers such as RTAs, custodians, and others.
📋 Mutual Fund Constituents
📑 Custodians
Custodians hold the fund’s securities and ensure their safekeeping. They are responsible for the settlement of securities transactions and managing corporate actions.
📊 R&T Agents
Registrar and Transfer Agents (RTAs) maintain investor records, process transactions, and handle investor services, such as unit issuance and redemption.
📋 Service Providers
💼 Banks
Banks provide collection and payment services for mutual funds. They facilitate the transfer of funds for investments and payouts like dividends and redemptions.
📑 Auditors
Auditors are responsible for auditing the mutual fund’s financial records and ensuring compliance with accounting standards and regulations.
📘 9.6.1 Registrar and Transfer Agents (RTAs)
📌 Definition
Registrar and Transfer Agents (RTAs) are primarily responsible for providing investor services. They process investor transactions and maintain investor records.
💡 Key Functions of RTAs
📈 Investor Transactions
- Issuing and redeeming units
- Maintaining and updating investor records
- Processing dividend payouts (IDCW) and redemptions
📋 Investor Service Centers
RTAs operate Investor Service Centers (ISCs) where investors can submit requests, including updating KYC details, changing bank accounts, or addressing grievances.
📘 9.6.2 Depositories and Depository Participants
📌 Definition
Depositories hold mutual fund units in dematerialized form. Investors may choose to hold units in a statement of account or in demat accounts with depository participants (DPs) of NSDL or CDSL.
💡 Role of Depositories
Each mutual fund scheme is assigned a unique International Securities Identification Number (ISIN) to facilitate dematerialized holding. Units held in demat form are transferable according to SEBI’s depository regulations.
📘 9.6.3 Banks
📌 Definition
Banks are responsible for facilitating the collection of funds and processing payouts like dividends and redemptions for mutual fund schemes.
💡 Key Functions of Banks
Banks collect payments from investors and report these transactions to RTAs and other service providers. They also process payouts to investors in case of dividends or redemption requests.
📘 9.6.4 Fund Accountant
📌 Definition
The fund accountant calculates the AUM, NAV, and other applicable expenses like TER for the mutual fund. They rely on data provided by the RTA, banks, and custodians.
💡 Key Role of Fund Accountants
Fund accountants ensure that the financial reports of the mutual fund are accurate, including the daily updates of the fund’s NAV and AUM.
📘 9.6.5 Auditor
📌 Definition
Auditors are responsible for auditing the books of the mutual fund to ensure compliance with the financial regulations and accounting standards.
💡 Role of Auditors
Auditors perform an independent review of the fund’s financial statements, ensuring that they adhere to SEBI regulations and accounting principles.
📘 9.6.6 Brokers
📌 Definition
Brokers execute the buy and sell transactions of the mutual fund managers, facilitating investment decisions within the fund.
💡 Role of Brokers
Brokers help mutual funds by executing trades in the securities market, assisting the fund manager in implementing investment strategies.
📘 9.6.7 Distributors and Registered Investment Advisers
📌 Definition
Distributors sell mutual fund products, while Registered Investment Advisers (RIAs) provide unbiased financial advice to investors, helping them make informed investment decisions.
💡 Distributors
Distributors work for AMCs to sell their products and may handle multiple mutual fund schemes. They must be registered with AMFI and obtain an AMFI Registration Number (ARN).
💡 Registered Investment Advisers
Registered Investment Advisers are independent advisors who do not earn commissions from AMCs. They charge clients for providing advice on investment decisions.
📘 9.6.8 Stock Exchange Platform and Other Digital Platforms
📌 Definition
Stock exchanges and digital platforms provide a convenient infrastructure for buying and selling mutual fund units. These platforms help expand the reach of mutual funds and enhance transparency.
💡 Stock Exchange Platforms
SEBI allows stock exchanges such as BSE and NSE to facilitate mutual fund transactions through platforms like BSE StAR and NSE Mutual Fund Platform (NMF), providing an independent view of investors’ portfolios.
📘 9.6.9 Payment Aggregator and Payment Gateway
📌 Definition
Payment aggregators and payment gateways provide the necessary infrastructure for processing online transactions, allowing mutual funds to accept payments efficiently.
💡 Role of Payment Aggregators and Gateways
Payment aggregators streamline payment processing for mutual funds, while payment gateways facilitate secure online transactions. These platforms help mutual funds manage investments and payouts without directly handling funds.
