Mutual Funds Structure

Mutual funds involve several key participants, each playing a distinct role in their creation, operation, and regulation. Here's a breakdown of the major players:

Financial Asset Management Structure Depository Asset Management Company Fund Sponsor Trustees Agent Custodian Financial Asset Management Structure Depository Fund Sponsor Asset Management Company Trustees Agent Custodian Mutual Fund Structure Depository Asset Management Company Fund Sponsor Trustees Agent Custodian

ParticipantsFund andStructure Theirof RolesMutual Funds

1. 1. Fund Sponsor:Sponsor

   • Any Role:person Theor entitycorporate body that conceives the idea of the mutual fund, establishes the fund,fund and registers it with theSEBI.
   regulatory
   • Forms authorities.a It'strust analogousand toappoints a Board of Trustees.
   • Appoints the promoter of a company.

2. Trustees:

   • Role: Appointed by the Fund Sponsor, the trustees hold the fund's assets in trust for the benefit of the unitholders (investors). They are responsible for overseeing the operations of the fund, ensuring it acts in accordance with the trust deed, regulations,Custodian and the best interests of the investors.

3. Asset Management Company (AMC): directly or through the trust as per SEBI regulations.

4. SEBI regulations require the sponsor to contribute at least 40% of the net worth of the AMC.

2. Trustees

• Role:

  Created Appointedthrough a legal document called the Trust Deed, executed by the Fund Sponsor and registered with SEBI.

• The mutual fund may be managed by a Board of Trustees, a Trustee Company, or a Corporate Body.

• Act as protectors of unit holders' interests.

• At least 2/3 of the trustees must be independent and not associated with the sponsor.

  Rights of Trustees

  • Approve each scheme launched by the AMC.
  • Request necessary information from the AMC.
  • Take corrective action if the fund business is not conducted as per SEBI regulations.
  • Dismiss the AMC isif responsiblerequired.
  for
  • Ensure that the day-to-dayAMC managementmaintains the required net worth.

  Obligations of Trustees

  • Enter into an Investment Management Agreement with the fund'sAMC.
  investments.
  • Furnish Thishalf-yearly includesreports makingto investmentSEBI decisionsabout (buyingfund activities.
  • Ensure no fundamental changes occur in the scheme without informing unit holders.
  • Review investor complaints and sellingensure securities),proper conductingredressal research, and administeringby the fund's operations.AMC.

Depository:3. Asset Management Company (AMC)

• Role:

  Acts Holdsas the fund'sprincipal securitiesmanager inof dematerializedthe (electronic)fund form,under ensuringthe theirsupervision safekeepingof the Trustees.

• Must be approved and facilitatingregistered electronicwith SEBI.

• Manages and launches different investment schemes under the trust’s name as per SEBI regulations.

• Acts as a fiduciary for unit holders and reports to the trustees.

• At least 50% of AMC board members must be independent.

  Obligations of the AMC

  • Launch investment schemes only after SEBI and Trustee approval.
  • Send quarterly reports to trustees.
  • Provide disclosures to investors, including NAV and repurchase price.
  • Maintain a minimum net worth of ₹10 crore.
  • Avoid transactions through brokers exceeding 5% of total transactions.
  • AMC cannot act as a trustee for any other mutual fund.
  • Must not undertake any conflicting business activities.

Agent:4. Custodian

• Responsible Role: Acts as a distributor or broker, sellingfor the mutualphysical fund'shandling unitsand tosafekeeping investors.of Theysecurities.
may
• Must alsobe provideindependent investmentof advicethe tosponsor investors.and registered with SEBI.

5. Custodian:5. Depository

   • Role: Holds thedematerialized physical custody of the fund's assets (securities), ensuring their safekeeping and managing related transactions (e.g., collecting dividends, settling trades).

Flow of Responsibility

The arrows in the diagram illustrate the flow of responsibility:

1. The Fund Sponsor initiates the fund and appoints the Trustees.
2. The Trustees appoint the AMC to manage the investments.
3. The AMC utilizes the services of the Depository, Agent, and Custodian to carry out its functions effectively.

Conclusion

The image provides a clear and concise visual representationsecurities of the mutual fund.

As Indian capital markets move away from physical certificates, securities are stored electronically.

Agents & Distributors

• Agents help sell mutual fund structure.units Itto highlightsinvestors.
• Distributors act as intermediaries between the key participants – Fund Sponsor, Trustees, AMC, Depository, Agent,AMC and Custodianinvestors.
–

and their respective roles in the establishment, management, and operation of the fund. The flowchart format effectively demonstrates the flow of responsibility and the interconnectedness of these entities in ensuring the smooth functioning and investor protection within a mutual fund.