Mutual Fund Structure in India

In India, mutual funds operate under a three-tiered structure involving a sponsor, a trust and trustees, and an Asset Management Company (AMC).

• 🔹 Sponsor: The organization that launches the mutual fund.
• 🔹 Trust and Trustees: The watchdogs that ensure compliance and investors' protection.
• 🔹 Asset Management Company (AMC): The company that handles investments.

1. Sponsor: The Originator

The journey of a mutual fund begins with a sponsor, an entity or financial institution that proposes the fund’s establishment. Think of it as the promoter in a business setup.

2. Trust and Trustees: Safeguards of Investors' Rights

Once the mutual fund is established, a trust is formed, and trustees are appointed to oversee operations. Trustees act as watchdogs, ensuring that the fund functions in compliance with SEBI regulations and serves the best interests of investors.

3. Asset Management Company (AMC): The Fund Manager

The AMC is the core operational unit of a mutual fund. It consists of professional fund managers and financial experts who make investment decisions on behalf of investors.

Supporting Entities in Mutual Fund Operations

Apart from the three main layers, mutual funds rely on various intermediaries to function smoothly:

• 1. Custodian
• 2. Registrar & Transfer Agents (RTA)
• 3. Auditors
• 4. Brokers
• 5. Distributors

1. Custodian: The Safe Keeper

Custodians are responsible for storing and safeguarding the securities purchased by the mutual fund. They ensure proper documentation and oversee transactions. All custodians must be registered with SEBI.

2. Registrar and Transfer Agents (RTA): The Record Keepers

RTAs handle investor-related services such as:

• Processing mutual fund applications.
• Facilitating investors' KYC (Know Your Customer).
• Handling and providing regular investment reports or statements.
• Updating investors' records.
• Managing investors' requests.

3. Auditors: The Compliance Checkers

Auditors ensure that the mutual fund’s financials are accurate, transparent, and free from irregularities. AMCs appoint auditors to review their books regularly.

4. Brokers: The Market Executors

Brokers execute buy and sell orders for the mutual fund, ensuring smooth transactions in stock markets. SEBI regulates their activities to prevent conflicts of interest.

5. Distributors and Intermediaries: The Connectors

Banks, financial advisors, and mutual fund agents act as distributors, helping investors select the right funds. They earn commissions from AMCs for bringing in new investors.

Final Thoughts

The mutual fund structure in India ensures a well-regulated and transparent investment ecosystem. With SEBI’s oversight, investors can trust that their money is managed responsibly. However, it’s always wise to do personal research before investing. Understanding the fund’s past performance, associated costs, and the expertise of the fund manager can help make informed decisions.