Structure of Mf

STRUCTURE OF MUTUAL FUND IN INDIA : -

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The above diagram gives an idea on the structure of an Indian mutual fund.

Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC)  and Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund shareholders. The pooled money is invested in the securities. Sponsor appoints trustees.

Trustees: Two third of the trustees are independent professionals who own the fund and supervises the activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI.

AMC: Asset Management Company (AMC) is a set of financial professionals who manage the fund. It takes decisions on when and where to invest the money. It doesn’t own the money. AMC is only a fee-for-service provider.

The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud.

Custodian: A Custodian keeps safe custody of the investments (related documents of securities invested). A custodian should be a registered entity with SEBI. If the promoter holds 50% voting rights in the custodian company it can’t be appointed as custodian for the fund. This is to avoid influence of the promoter on the custodian. It may also provide fund accounting services and transfer agent services. JP Morgan Chase is one of the leading custodians.

Transfer Agents: Transfer Agent Company interfaces with the customers, issue a fund’s units, help investors while redeeming units. Provides balance statements and fund performance fact sheets to the investors. CAMS is a leading Transfer Agent in India.