How is a mutual fund made?
STRUCTURE OF MUTUAL FUND IN INDIA– It is important for a mutual fund investor to know that he understands how a mutual fund company is formed, and how the mutual fund offer is delivered to us by the mutual fund company,
By understanding the STRUCTURE OF MUTUAL FUND, it is beneficial for us that we are able to understand, who are the people and which organization are behind a mutual fund, and what kind of work they have done before, they have done before. What is the type of BUSINESS or FINANCIAL SERVICES, and how much is their experience, as well as what is their track record,
And in this way, by understanding the STRUCTURE OF MUTUAL FUND, we can make better investment decisions, and we always know in whose hands our investment is,
CONTROL,FRAMEWORK AND STRUCTURE OF MUTUAL FUND IN INDIA
Mutual Fund in India is a Well regulated investment option, and SEBI (Securities Exchange Board of India) has full control over Mutual Fund,
Since mutual fund investment is a subject related to the money invested by investors, SEBI in India has made many rules to run mutual funds in an orderly, transparent, and institutional form,
And in this way the RULES and REGULATION “MUTUAL FUND REGULATION 1996” made by SEBI applies to Mutual Fund Institutions in India,
All mutual fund institutions have to follow this regulation.
Let us now try to understand that, in SEBI “MUTUAL FUND REGULATION 1996, how the establishment of MUTUAL FUND has been instructed-
SETUP AND STRUCTURE OF MUTUAL FUND IN INDIA
According to the MUTUAL FUND REGULATION 1996 made by SEBI, for the SET UP of any new MUTUAL FUND in INDIA, MUTUAL FUND has to form an organization at four levels,
- SPONSOR OF MUTUAL FUND
- TRUSTEE OF MUTUAL FUND
- ASSET MANAGEMENT OF COMPANY OF MUTUAL FUND
- CUSTODIAN OF MUTUAL FUND
You can also understand this in this way, these four people (four companies, four organizations) essentially work behind any mutual fund,
Now let us try to understand in some detail about these four organizations and the organizations working with them as subsidiary organizations namely fund house, registrar and transfer agent (RTA), auditors and fund accountants, Distributor of mutual fund,
SPONSOR OF MUTUAL FUND
The “SPONSOR” of any mutual fund is the MAIN BODY of the mutual fund,
Just as the promoter is the most important person in the establishment of a company, similarly a mutual fund sponsor is like a promoter.
Like – ICICI Mutual Fund is the SPONSOR of – ICICI Bank and Prudential.
AND SPONSOR OF BIRLA SUN LIFE MUTUAL FUND – Aditya Birla Financial Services and Sun Life (India) AMC Investments Inc.
If we talk about the responsibility of the sponsor of a mutual fund, then its promoter has a huge contribution in ensuring that the mutual fund continues to function properly.
The main work of the promoter is to set up a mutual fund with SEBI by fulfilling various conditions, formation of TRUST and its approval from SEBI is the most important work,
Along with this, it is also the responsibility of the sponsor to set up the AMC as per the Companies Act, fulfilling the conditions of SEBI.
SEBI has set some special guidelines and ELIGIBILITY CRITERIA for SPONSOR of Mutual Fund, you can read it by opening the link given below on SEBI website,
SEBI – SPONSOR CRITERIA
TRUSTEE OF MUTUAL FUND
The main job of a TRUSTEE in a mutual fund is to ensure that the interests of the investors are fully protected by the mutual fund, and at the same time, the mutual fund follows the rules made by SEBI properly. ,
How TRUSTEE is formed, you can read on SEBI website,
Also if we talk about what is the main work of TRUSTEE?
So the main job of the TRUSTEE is to enter into an investment management agreement with the ASSET MANAGEMENT COMPANY (AMC), and decide how the AMC will work, and what things it has to keep in mind, so that the investors The rules made by SEBI can be followed with security,
TRUSTEE ensures that the AMC has all the necessary facilities, so that it can do its full research and invest in a better way, as well as appoint the CEO, Fund Manager and Analyst of the AMC by the Trustee. She goes,
APPROVAL of all schemes made by AMC is given by TRUSTEE, and also TRUSTEE has to VERIFY all kinds of TRANSACTION done by AMC on QUARTERLY BASE, and its report has to be given to SEBI,
ASSET MANAGEMENT COMPANY (AMC)
AMC is the investment manager of the mutual fund, all kinds of research and analysis are done by the AMC to actively invest in the market.
Like –, HDFC MUTUAL FUND’s ASSET MANAGEMENT COMPANY is – HDFC AMC
As we have seen earlier AMC is established by TRUSTEE or SPONSOR with the approval of SEBI,
There are some major posts inside AMC – CIO i.e. CHIEF INVESTMENT OFFICER, second FUND MANAGER, and third ANALYST, and COMPLIANCE OFFICER,
And all of them, while doing their work, follow all the guidelines and rules made by SEBI,
CUSTODIAN OF MUTUAL FUND
Custodian As the name suggests, this is the part (body) of the mutual fund, which keeps all the shares and securities bought by the mutual fund’s AMC under its custody.
AND THE CUSTODIAN OF THE MUTUAL FUND MAKES SURE THAT ALL THE SHARES AND SECURITIES ARE ABSOLUTELY SAFE,
REGISTRAR AND TRANSFER AGENT (RTA)
There is another part (BODY) of Mutual Fund – Registrar and Transfer Agent (RTA), its meaning is also understood in its name – RTA registers, and transfers UNIT with approval of all new applications of Mutual Funds. Along with it also completes the process of mutual fund unit sale i.e. mutual fund redemption,
THE AUDITORS OF MUTUAL FUND
There is another part (BODY) of mutual fund – Auditors
As the name suggests, auditors are responsible for auditing all transactions done by the AMC of mutual funds.
THE FUND ACCOUNTANTS OF MUTUAL FUND
Mutual Fund has another part (BODY) – Fund Accountant
The main job of a fund accountant is to determine the NAV of a mutual fund based on all its assets and liabilities.
SUMMARY : STRUCTURE OF MUTUAL FUND IN INDIA
Any MUTUAL FUND is a name (MAIN BODY), there are many parts (PART OF BODY) working behind it, which we know by SPONSOR, TRUSTEE, AMC, Custodian, RTA, and other names,
This means to say that, after joining many different institutions, a mutual fund is formed, and in this all become accountable to each other, and due to which the scope of any kind of fraud becomes negligible,
And on top of all this SEBI is there, which immediately catches hold of any kind of mess, and tries its best to fix it immediately,
In this way, an investor should understand that investing in mutual funds is a safe investment, in which a mutual fund company, in case of closure, returns the money to all its investors.
In this way, investing in mutual funds by any investor can be considered as a reliable and safe investment.