– Contributed By  Deepak Miglani  

Mutual Fund is a popular form of investment where many individual investors let a company pool together their money, hire an investment advisor to manage their money, and invest with the goal of achieving specific financial objectives. This benefits individual investors because it enables them to diversify their portfolios and have a professional mutual fund manager invest their money. It are managed by an investment company.

 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 soponser, trust, asset Management Company, custodian, and registrar and transfer 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 require a sponsor to have experience of least five years in the financial services business, three years of which should 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 investor's 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(AMC)

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 board have to be independent directors. The AMC is paid a fee for its services. One AMC can work for only one fund and can not 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.

Registrar and Transfer Agent(RTA)

The RTA is appointed by the AMC. It is the interface for the investor for all services like issuing and redeeming units or switching. It maintains  and updates investors records. Its fee is included in the recurring expenses.

 
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