If you are a prudent investor who is keen to invest in mutual funds, then it is important to know the structure of a mutual fund. Basically, who are the important people in a mutual fund? What are their roles, etc.
Well, if you’re guessing it to be your financial adviser, then are wrong because every financial planner or adviser can only give you an advice as well as make you aware of mutual fund schemes and their implications, but they do not manage your funds. They only help in growing your fund wisely.
Do not compare mutual fund schemes with any Ponzi scheme because mutual funds follow a 3-tier structure. It is important for every citizen to understand the relevance and importance of mutual funds.
Under the umbrella of three-tier structure, the number one is a sponsor, second is the trustee and the third is the asset management company who actually manages the investors’ money.
1. A sponsor is a person or entity who approaches the Securities & Exchange Board of India, which is the market regulator and also the regulator for mutual funds. It is to be noted that not everyone can start a mutual fund. SEBI checks whether the person is of integrity, whether he is having enough experience in the financial sector or not. SEBI also checks the net worth and other relevant information and ensures that the sponsor creates a trust after successful verification and authentication
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2. Trusts are formed under the Indian Trusts Act 1882, where the trustees are the people authorized to act on behalf of the trust. All the contracts are entered into in the name of the Trustees and as soon as the trust is registered with SEBI, it is known as the mutual fund. However, the role of trustee is not to manage the money. They only observe whether the money is being managed as per stated objectives or not. Trustees can supervise the internal regulators of a mutual fund.
3. Asset management company (AMC) is appointed by the trustee to manage the investor’s money through their fund managers or analysts. In return, AMC charges a fee for the services. This fee is borne by the investors as it is deducted from the money invested by them. However, there is a maximum limit to the amount that can be charged as an expense to the scheme, and this fee has to be within that limit only. AMC is again approved by SEBI. It is the AMC, which in the name of the Trust, floats new schemes and manage these schemes by buying and selling securities.
Fund managers, who sell and purchase the securities, take the permission of the Compliance Officer. AMC needs to follow all the rules and regulations made by SEBI. Whenever the fund intends to launch a new scheme, the AMC has to submit a draft of legal offer document to SEBI for further approval. This is the only document on which investor relies upon. Therefore, it is drafted very carefully keeping the interest of investor intact.
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AMC does all the operational role. The role of the AMC is as follows:-
To manage the investor’s money on a daily basis.
It cannot deal with a single broker beyond a certain limit of transactions.
It cannot act as a Trustee for some other Mutual Fund.
The responsibility of preparing the offer documents lies with the AMC.
It appoints intermediaries like an independent financial adviser (IFAs), national and regional distributors, banks, etc.
It is held responsible for the acts of its employees and service providers.
As you can see that SEBI is evolved everywhere who acts in the interest of investors. Therefore, if you are thinking to invest in mutual funds, then go ahead and invest in fulfilling your financial goals.