There are majorly 5 constituents of mutual funds in India. Making the law and rules of each very clear for investors to understand. Because the legal structure for investors needs to be strong, and it helps investors to understand their rights and obligations of the funds to invest.
Constituents of Mutual Funds in India Are
- Sponsors
- Board of Trustee
- Mutual Fund Trust
- Custodian
- Asset Management Company
Sponsors:-
Sponsors are one of the most vital constituents of a mutual fund. For registration of a mutual fund, the application to SEBI is made by the sponsor. So the sponsors are the main people behind mutual funds operations.
Key Eligibility Criteria of a Sponsor
- It was recommended that the sponsor be accountable for all transactions. So the sponsor needs to carry good track record of all business transactions.
- The sponsor should be in the financial services business for at least 5 years.
- In the preceding 5 years, the sponsor should have a positive net worth. This should be greater than the sponsor contributes to the capital of the AMC.
- The sponsor should be a suitable person to participate in this kind of activity.
Board of Trustees:–
The trustee has a very vital role in a mutual fund. They ensure the mutual funds comply with all the rules and regulations and protect the interests of the unit holder. A person to get appointed as a Trustee needs SEBI’s prior approval.
At least four trustees are to be appointed by the sponsor. There are four directors on the board for all trustee companies. In addition, it is required that at least two-thirds of the trustees on the Board of the trustee company are independent trustees. Not associated with sponsors in any way. So the trustee is one of the major constituents of mutual funds in India.
Key Responsibilities of Trustees
- There is an Investment Management Agreement with the AMC, the trustee enters to define the functioning of the AMC in making and managing the mutual fund’s investments.
- The trustees are entitled to seek any information they require from the AMC to facilitate their responsibilities.
- The trustees ensure to the fund managers, compliance officers, audits, and others that all systems are in place before the launch of any scheme.
- The trustees must make sure the trust property is properly secured, held and administered.
- The trustees keep records of their securities dealings. That happens on a quarterly basis.
- If the trustee feels that there are any wrong practices then can inform to SEBI of necessary actions.
- The trustees shall file half-yearly reports to SEBI
Mutual Fund Trust:-
Mutual Fund Trust is one of the major constituents of mutual funds in India. The trustees named in such a document are entitled to a copy of the trust deed registered under the Indian Registration Act, 1908 executed by the sponsor.
Custodian:-
The custodian has custody of the assets of the fund. The custodian accepts and gives delivery of securities for the purchases and sale transactions of various schemes of the fund as part of this role. On behalf of mutual funds, the custodian settles the transactions.
Custodians are registered with SEBI under the SEBI Custodian Act 1996. A custodial agreement between the trustee and custodian is needed to appoint a custodian. The custodian works for benefits. of investors. The custodian also tracks corporate actions like dividends, bonuses, and rights issues.
Asset Management Company:-
AMC is another vital constituent of mutual funds in India. It handles day by day operations of a mutual fund. The sponsor or trustee appoints the AMC with the approval of SEBI.
Various SEBI Regulations for AMC
The director of AMC needs to be having adequate knowledge about finance or be a professional in financial fields. The director was never convicted of any economic offense or violation. It is said that key personnel of AMC should not have worked for any asset management company or mutual fund or intermediary during the period when its registration was suspended or canceled at any time by SEBI.
The AMC appoints Fund Managers, who manage and invest the public funds in various asset classes. AMC ensures all systems run as per SEBI’s criteria and norms. The appointment of an AMC can be terminated by a majority of the trustees, or by 75 percent of Unitholders.
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