Chapter 2
• Mutual Fund is established as a trust. Therefore, they are governed by the
Indian Trusts Act, 1882
• The mutual fund trust is created by one or more Sponsors, who are the
main persons behind the mutual fund business.
• Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund
trust, are the investors who invest in various schemes of the mutual fund.
• Day to day management of the schemes is handled by an Asset
Management Company (AMC). The AMC is appointed by the sponsor or the
Trustees.
• Sponsor should be carrying on business in financial services for 5 years.
Sponsor should have positive net worth (share capital plus reserves
minus accumulated losses) for each of those 5 years. Latest net worth
should be more than the amount that the sponsor contributes to the
capital of the AMC. The sponsor should have earned profits, after
providing for depreciation and interest, in three of the previous five
years, including the latest year. The sponsor needs to have a minimum
40% share holding in the capital of the AMC.
• Prior approval of SEBI needs to be taken, before a person is appointed as
Trustee. The sponsor will have to appoint at least 4 trustees. If a trustee
company has been appointed, then that company would need to have at
least 4 directors on the Board. Further, at least two-thirds of the trustees /
directors on the Board of the trustee company, would need to be
independent trustees i.e. not associated with the sponsor in any way.
• Day to day operations of asset management is handled by the AMC.
• The directors of the asset management company need to be persons
having adequate professional experience in finance and financial services
related field. The directors as well as key personnel of the AMC should not
have been found guilty of moral turpitude or convicted of any economic
offence or violation of any securities laws. Key personnel of the AMC
should not have worked for any asset management company or mutual
fund or any intermediary during the period when its registration was
suspended or cancelled at any time by SEBI.
• Prior approval of the trustees is required, before a person is appointed as
director on the board of the AMC. Further, at least 50% of the directors
should be independent directors i.e. not associate of or associated with the
sponsor or any of its subsidiaries or the trustees.
• The AMC needs to have a minimum net worth of Rs. 10crore. An AMC
cannot invest in its own schemes, unless the intention to invest is disclosed
in the Offer Document. Further, the AMC cannot charge any fees for its
own investment in any of the schemes managed by itself.
• The appointment of an AMC can be terminated by a majority of the
trustees, or by 75% of the Unit-holders. However, any change in the AMC is
subject to prior approval of SEBI and the Unit-holders.
• The custodian has custody of the assets of the fund. As part of this role, the
custodian needs to accept and give delivery of securities for the purchase
and sale transactions of the various schemes of the fund. Thus, the
custodian settles all the transactions on behalf of the mutual fund
schemes.
• All custodians need to register with SEBI. The Custodian is appointed by the
mutual fund. A custodial agreement is entered into between the trustees
and the custodian.
• The SEBI regulations provide that if the sponsor or its associates control
50% or more of the shares of a custodian, or if 50% or more of the directors
of a custodian represent the interest of the sponsor or its associates, then
that custodian cannot be appointed for the mutual fund operation of the
sponsor or its associate or subsidiary company.
• The custodian also tracks corporate actions such as dividends, bonus and
rights in companies where the fund has invested.
• The RTA maintains investor records. The appointment of RTA is done by the
AMC. It is not compulsory to appoint a RTA. The AMC can choose to handle
this activity in-house. All RTAs need to register with SEBI.
• Auditors are responsible for the audit of accounts. Accounts of the schemes
need to be maintained independent of the accounts of the AMC. The
auditor appointed to audit the scheme accounts needs to be different from
the auditor of the AMC. While the scheme auditor is appointed by the
Trustees, the AMC auditor is appointed by the AMC.
• The fund accountant performs the role of calculating the NAV, by collecting
information about the assets and liabilities of each scheme.
• Mutual Fund is established as a trust. Therefore, they are governed by the
Indian Trusts Act, 1882
• The mutual fund trust is created by one or more Sponsors, who are the
main persons behind the mutual fund business.
• Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund
trust, are the investors who invest in various schemes of the mutual fund.
• Day to day management of the schemes is handled by an Asset
Management Company (AMC). The AMC is appointed by the sponsor or the
Trustees.
• Sponsor should be carrying on business in financial services for 5 years.
Sponsor should have positive net worth (share capital plus reserves
minus accumulated losses) for each of those 5 years. Latest net worth
should be more than the amount that the sponsor contributes to the
capital of the AMC. The sponsor should have earned profits, after
providing for depreciation and interest, in three of the previous five
years, including the latest year. The sponsor needs to have a minimum
40% share holding in the capital of the AMC.
• Prior approval of SEBI needs to be taken, before a person is appointed as
Trustee. The sponsor will have to appoint at least 4 trustees. If a trustee
company has been appointed, then that company would need to have at
least 4 directors on the Board. Further, at least two-thirds of the trustees /
directors on the Board of the trustee company, would need to be
independent trustees i.e. not associated with the sponsor in any way.
• Day to day operations of asset management is handled by the AMC.
• The directors of the asset management company need to be persons
having adequate professional experience in finance and financial services
related field. The directors as well as key personnel of the AMC should not
have been found guilty of moral turpitude or convicted of any economic
offence or violation of any securities laws. Key personnel of the AMC
should not have worked for any asset management company or mutual
fund or any intermediary during the period when its registration was
suspended or cancelled at any time by SEBI.
• Prior approval of the trustees is required, before a person is appointed as
director on the board of the AMC. Further, at least 50% of the directors
should be independent directors i.e. not associate of or associated with the
sponsor or any of its subsidiaries or the trustees.
• The AMC needs to have a minimum net worth of Rs. 10crore. An AMC
cannot invest in its own schemes, unless the intention to invest is disclosed
in the Offer Document. Further, the AMC cannot charge any fees for its
own investment in any of the schemes managed by itself.
• The appointment of an AMC can be terminated by a majority of the
trustees, or by 75% of the Unit-holders. However, any change in the AMC is
subject to prior approval of SEBI and the Unit-holders.
• The custodian has custody of the assets of the fund. As part of this role, the
custodian needs to accept and give delivery of securities for the purchase
and sale transactions of the various schemes of the fund. Thus, the
custodian settles all the transactions on behalf of the mutual fund
schemes.
• All custodians need to register with SEBI. The Custodian is appointed by the
mutual fund. A custodial agreement is entered into between the trustees
and the custodian.
• The SEBI regulations provide that if the sponsor or its associates control
50% or more of the shares of a custodian, or if 50% or more of the directors
of a custodian represent the interest of the sponsor or its associates, then
that custodian cannot be appointed for the mutual fund operation of the
sponsor or its associate or subsidiary company.
• The custodian also tracks corporate actions such as dividends, bonus and
rights in companies where the fund has invested.
• The RTA maintains investor records. The appointment of RTA is done by the
AMC. It is not compulsory to appoint a RTA. The AMC can choose to handle
this activity in-house. All RTAs need to register with SEBI.
• Auditors are responsible for the audit of accounts. Accounts of the schemes
need to be maintained independent of the accounts of the AMC. The
auditor appointed to audit the scheme accounts needs to be different from
the auditor of the AMC. While the scheme auditor is appointed by the
Trustees, the AMC auditor is appointed by the AMC.
• The fund accountant performs the role of calculating the NAV, by collecting
information about the assets and liabilities of each scheme.
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