KEY PLAYERS IN MUTUAL FUNDS

Mutual Fund is formed by a trust body. The business is set up by the sponsor, the money invested by the asset management company and the operations monitored by the trustee. There are five principal constituents and three market intermediaries in the formation and functioning of mutual fund. 

The five constituents are: 

Sponsor 

A company established under the Companies Act forms a mutual fund. 

Asset Management Company 

An entity registered under the Companies Act to manage the money invested in the mutual fund and to operate the schemes of the mutual fund as per regulations. It carries the responsibility of investing and managing the investors’ money. Professional money managers are appointed by the asset management company to take care that the investor’s corpus are invested in profitable securities based on the risk appetite of the investors and according to the mutual fund scheme. The AMC typically has three departments viz. (a) Fund Management (b) Sales & marketing (c) Operations & Accounting. 

Trustee 

The trust is headed by Board of Trustees. The trustee holds the property of the mutual fund in trust for the benefit of unit holders and looks into the legal requirements of operating and functioning of the mutual fund. The trustee may also form a limited company under the Companies Act in some situations. The trustees have the duty to monitor the actions of the AMC to ensure compliance with

the SEBI regulations and to see that the decisions of the AMC are not against the interests of the unit holders.

Unit Holder

A person/entity holding an undivided share in the assets of a mutual fund scheme.

Mutual Fund

A mutual fund established under the Indian Trust Act to raise money through the sale of units to the public for investing in the capital market. The funds thus collected are passed on to the Asset Management Company for investment. The mutual fund has to be registered with SEBI.

The three market intermediaries are:

(a) Custodian; (b) Transfer Agents; (c) Depository.

(a) Custodian: A custodian is a person who has been granted a Certificate of Registration to conduct the business of custodial services under the SEBI (Custodian of Securities) Regulations 1996. Custodial services include safeguarding clients’ securities along with incidental services provided. Maintenance of accounts of clients’ securities together with the collection of benefits / rights accruing to a client falls within the purview of custodial service. Mutual funds require custodians so that AMC can concentrate on areas such as investment and management of money.

(b) Transfer Agents: A transfer agent is a person who has been granted a Certificate of Registration to conduct the business of transfer agent under SEBI (Registrars to an Issue and Share Transfer Agents) Regulations Act 1993. Transfer agents’ services include issue and redemption of mutual fund units, preparation of transfer documents and maintenance of updated investment records. They also record transfer of units between investors where depository does not function.

(c) Depository: Under the Depositories 1996, a depository is body corporate who carries out the transfer of units to the unit holder in dematerialised form and maintains records thereof.