Mutual Fund Meaning, What is its strong Structure?
Mutual Fund meaning is very simple. These funds will have a strong structure, pool investor’s money, having the aim to get profit from various assets like stocks.
Asset Management Company is another name for Mutual Fund.
Under Standing Mutual Fund meaning?…
We all earn money.
In addition, we would like to save or invest our money in asset classes like equity, real estate, and gold, etc.
But many of us do not have the expertise to do research and then invest.
yes, you can get experts who can guide you to invest in the above asset classes
But their services available only if you have larger money to invest.
Here, In mutual funds, you can invest as low as monthly Rs.100 for the purpose of investing in various asset classes.
What is Mutual Fund meaning?
Asset Management Company is a common pool of money in which investors will invest their contribution.
In addition, According to the objective of the fund, the pooled amount will be invested.
Moreover, these funds will be invested in bonds, stocks, real estate, and gold, etc based on fund objective.
In addition, Professional Fund Managers will manage this fund.
These funds managers will try to get profit for the investors according to the objective of the scheme or fund.
For example, a debt fund will invest in government, corporate bonds, and other money market instruments to generate returns to the investors.
Similarly, Equity Mutual fund will invest in stocks and other equity-related instruments to generate profit to the investors.
Some Common Categories of Mutual Funds are…
- These funds will invest in stocks and other equity instruments.
2. Debt Funds…
- These funds will invest in Fixed Income Instruments.
3. Money Market Funds…
- These Funds will invest in short term money market instruments.
4. Hybrid Funds…
- These Funds will invest a combination of equity and debt to create a balance in the return.
What is the Mutual Fund Structure?…
In this article, We have learned that What is a Mutual Fund.
Now, I will explain the mutual fund’s structure and how strong it is?…
Mutual Funds have a very good structure.
In addition, because of this structure, the chance of fraud is almost nil.
The person or a corporation who launches a mutual fund is called as Sponsor.
According to Sebi, a Sponsor should have the following qualities.
- Good Reputation.
- Great Professional Competence
- It should be financially Sound.
The sponsor also need to have at least 5 years of experience financial services industry.
In addition, it also should contribute 40% of the AMC Net Worth.
However, the sponsor not responsible for the losses made by the schemes or funds apart from the 40% of the contribution is made for setting up the mutual fund.
Mutual Fund company will create trust and it should be registered with Sebi.
In addition, The mutual Fund company will appoint trustees.
These trustees are the owners of the mutual fund property and assets.
However, The Trust will not look at the day to day activities of the mutual fund.
But it will make sure that the mutual fund company is working and how the money is being invested as per the regulations given by Sebi.
Moreover, The Trustees act as protectors of Mutual Fund Investors.
In addition, As per Sebi Regulation, 2/3rd of the directors of the Trust should be independent and should not be associated with the sponsor in any manner.
3) AMC ( Asset Management Company)…
AMC means an asset Management Company.
In addition, it actually manages the money and takes the decision of investing investors’ money.
Trustees will appoint AMC.
Moreover, the AMC will do the fund management and will charge a fee from the investors for the services rendered for investing their money.
In addition, this fee charged is called as expense ratio of the fund.
Sebi will approve the AMC and its directors.
In addition, 50% of AMC directors must be independent.
So, the AMC has to function under the supervision of Sebi, Trustees, and Directors.
Some Rules by Sebi…
- One AMC can not buy more than 5% of the securities.
- When I say Aditya Birla Sun Life Mutual Fund, I am referring to Aditya Birla Sun Life AMC Limited.
So, all the buying and selling decisions are taken Aditya Sun Life AMC limited not by the Aditya Birla Sun Life Mutual Fund ( Trust).
Here, in this link, you can see that Aditya Birla Sun Life AMC and Aditya Birla Sun Life Mutual Fund are different.
AMC is responsible for floating up a fund or scheme.
In addition, the AMC must follow rules prescribed by Sebi and requires the signature of Trust.
So, the Birla Sun Life Tax Plan was floated by Aditya Birla Sun Life AMC Limited but owned by Aditya Birla Sun Life Mutual Fund ( Trust ).
In addition, The AMC appoints all the fund managers, IFA (agents) and all the employees who work at the AMC offices.
Custodian and Depository…
It is an important entity in the strong structure of a mutual fund
The securities which are bought and sold are not owned by the AMC.
Moreover, these securities will be held by the Custodian or Depository Participant.
It is registered with Sebi and has access to the securities.
A Custodian will keep Physical Securities ( like Gold and Physical Certificates ) and any demat stocks/ units at the depositary level.
In addition, The Custodian has to look at the Corporate Actions, Dividends, bonuses declared by the stocks in which the AMC has invested.
An AMC can more than one Custodian.
In the case of HDFC AMC, HDFC Bank is the custodian to hold securities and when it comes to HDFC Gold ETF Deutsche Bank is Custodian who holds Physical Gold.
As per the regulations, The sponsor and the Custodian must be separate entities.
So, the mutual funds are very safe and the fraud is almost impossible.
5. Registrar and Transfer Agent (RTA)…
These entities will be appointed by the AMC.
In addition, these registrars will process purchasing of mutual fund units, refunds ( redemptions of money, processing investors KYC and issuing of unit certificates ( Account Statements), etc.
You might have heard about Cams and Karvy.
Which are Registrars and Transfers agents for mutual funds.
In addition, Some AMC’s will give the contract to Karvy and some for Cams.
So, for example HDFC, ICICI, Aditya Birla etc gave contract to CAMS (Computer Age Management Services).
So, after looking at the above strong structure of mutual funds, It is very difficult for fraud in Mutual funds as lot of care has been taken by the Government and Sebi.
Are you looking to invest in Mutual Funds? then it is wise to hire a Sebi Registered Investment Adviser like me.
As Sebi Ria’s are having proper qualification and no or low conflict of interest than other financial intermediaries.