Tuesday, September 19, 2006

Organisation of MF

Organisation of MF

Now, let us see the parties involved in the initiation and operation of a Mutual Fund.

A sponsor (promoter) creates a trust (the Mutual fund). The fund should be approved by the regulator, i.e., SEBI (Securities and Exchange Board of India).

The Trustee appointed by the sponsor is authorised to accept funds from various investors for management in accordance with a specified objective. The Trustee safeguards the interest of investors in the mutual fund and also ensures that the operations of the fund comply with the relevant regulations.

The investment of the funds and other functions are managed by an Asset Management Company (AMC) appointed by the Trustee of the fund. The Trustee oversees the performance of the AMC. The AMC employs professionals to manage the funds.

The AMC is assisted by a custodian and a registrar (transfer agent). The custodian, normally a bank or any other financially sound institution, is responsible for the custody of the assets of the fund and safeguarding the interests of the fund arising from the assets. The registrar maintains the records of the unitholders (the MF beneficiaries)and handles communications with them..

SEBI has laid down that a Mutual Fund, the Trustees and the AMC should be three distinct entities. It also mandates that the Custody of the Portfolio should not be with the AMC but with a Custodian, specifically approved by SEBI. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent.

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