Mutual Fund and its Structure

What is Mutual Fund?

While considering investment options, the first challenge faced by the investor is a variety of options from shares, bonds, gold, real estate etc. Mutual Fund is also one of such options. Whether the investment objective is financial gain or regular income, mutual funds offer all types of benefits to its investors.

Mutual fund is an investment vehicle that pools the funds collected from a number of investors for the purpose of investing in securities such as stocks, bonds, money market instruments, etc. This collected money is invested in various securities in accordance with objectives as disclosed in the offer document and managed by a professional fund manager.

The investors are issued account statements showing the number of units they own, which basically represent the portion of the fund that they hold, based on the amount invested by them. Hence, an investor is also known as a unit holder of a mutual fund.

The income earned through these investments is passed to the investors / unit holders in proportion to the number of units they own from time to time after deducting some expenses.

Mutual Fund is an ideal investment option for the common man as it is very convenient and timesaving and offers an opportunity to invest in a diversified and professionally managed basket of securities at a relatively low cost. It also helps investors to get better inflation-adjusted returns.

What is the Structure of Mutual Funds?

The Mutual Funds in India are regulated by SEBI MF Regulations, 1996 under which a mutual fund is formed as a Public Trust having three tiered structure as follows:

  1. Sponsor – For creation of a mutual fund
  2. Trustees – To look after interest of investors
  3. Asset Management Company – To invest and manage the funds

Sponsor – Sponsor is any person who either itself or in association with another body corporate sets up a mutual fund. The major objective behind establishing a mutual fund is to earn money by doing fund management. We can compare a sponsor with a promoter of a company.

Trustees – Trustees are appointed to manage the trust. The primary responsibility of the trustees is to protect the interest of the investors of the mutual funds. They are considered as the primary guardians of the investors’ funds. They also ensure that the operations of the mutual fund comply with the relevant regulations.

Asset Management Company – Asset management company (AMC) is created by the sponsor to manage the funds of the mutual fund. It is considered as the investment Manager of the Trust and an operational arm of the mutual fund. It is the responsibility of the trustees to make sure that the AMC has proper system and procedures in place. AMCs charge a small fee for fund management

Apart from above entities, following entities also play a vital supporting role in the smooth functioning of a mutual fund.

Custodian- Custodian is an independent organisation. Custodian keeps the physical custody of the all the securities bought by the AMC. The securities are bought in the name of trustees but they are not kept with them. Securities, which are in physical form, are kept in the safe custody of a custodian and securities, which are in De-Materialized form, are kept with a Depository Participant, as per the advice of custodian.

Registrar and transfer agent (RTA)- The main function of an RTA is to process, maintain and update all the investors records. Other function is to offer the investor servicing through its office and various other branches located in different parts of the country. It processes all the transactions like application, purchase, redemption, switch etc submitted by the investors directly or through the AMC in various schemes and plans.

Auditors- They perform auditing of the AMC’s accounts. They also ensure that the accounts of schemes are maintained independently from that of the AMC. They make sure that separate books of account are prepared and maintained for each scheme of the mutual fund and their annual reports are also being prepared. The auditor of the mutual fund schemes and the auditor of the AMC must be different.

Fund accountants- The function of fund accountants is to calculate the NAV (fund price) of the schemes based on the assets and liabilities of each scheme.

Brokers- Brokers are registered members of the stock exchange. AMC utilizes their services to buy and sell securities on the stock exchanges.

Upcoming Bank Holidays

2018 June 30 is a bank holiday in Mizoram due to Remna Ni.
2018 July 02 is a bank holiday in Andaman And Nicobar Island due to Annual Closing Of RBI.
2018 July 03 is a bank holiday in Meghalaya due to Beh Dienkhlam.
2018 July 05 is a bank holiday in Jammu And Kashmir due to Guru Hargobindji's Birthday.
2018 July 13 is a bank holiday in Arunachal Pradesh due to Bhanu Jayanti/Martyr's Day.
2018 July 17 is a bank holiday in Meghalaya due to U Tirot Sing Day.

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