Key Entities in Mutual Funds – Overview

Introduction

A mutual fund is like a cricket team—it needs multiple players working together. Let's understand who does what in the MF ecosystem.

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The 7 Key Entities

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1. Sponsor (The Founder)

Role: Establishes the mutual fund

Examples:

• HDFC Bank → HDFC Mutual Fund
• SBI → SBI Mutual Fund
• ICICI Bank → ICICI Prudential MF

Key Duties:

• Appoint trustees
• Provide initial capital
• Brand strength (trust factor)

Eligibility: 5+ years in financial services, ₹5 Cr net worth

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2. Trustees (The Guardians)

Role: Oversee AMC on behalf of investors

Structure: Board of Trustees (min 4 members, 2/3rd independent)

Duties:

• Approve new schemes
• Monitor AMC performance quarterly
• Ensure SEBI compliance
• Protect investor interests

Think of them as: Independent board of directors

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3. AMC (The Manager)

Role: Day-to-day fund management

Full Form: Asset Management Company

Activities:

• Stock selection (research + buy/sell decisions)
• NAV calculation (daily)
• Launch new schemes
• Investor servicing
• Marketing

Team:

• CEO
• Fund Managers (CFA/MBA)
• Research Analysts
• Compliance Officer
• Operations Team

Example: HDFC AMC Ltd. (runs HDFC Mutual Fund)

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4. RTA (The Record Keeper)

Role: Maintain investor databases

Full Form: Registrar & Transfer Agent

Services:

• KYC verification
• Unit allotment
• Process redemptions
• Send account statements (monthly/quarterly)
• Handle investor queries

Major RTAs:

• CAMS (Computer Age Management Services)
• Karvy (now Kfintech)

Example: When you invest ₹5,000 via SIP, RTA:

1. Allocates units to your folio
2. Updates your statement
3. Emails you the transaction receipt

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5. Custodian (The Vault)

Role: Physical custody of securities

What they hold:

• Share certificates (electronic)
• Bonds
• Government securities
• Cash (for transactions)

Additional Duties:

• Settle trades (buy/sell clearance)
• Collect dividends/interest
• Track corporate actions (bonus, splits)

Example Custodians:

• HDFC Bank Custodial Services
• ICICI Bank Custodial
• Deutsche Bank

Why separate? Prevents AMC from misusing assets (segregation of duties)

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6. Distributor (The Salesperson)

Role: Sell mutual fund schemes to investors

Types:

• Banks (HDFC Bank, SBI)
• IFAs (Independent Financial Advisors)
• Online Platforms (Groww, Zerodha Coin, Paytm Money)
• National Distributors (Karvy, CAMS offices)

Compensation: Commission (trail fee) from AMC

Duty: Suitability assessment (match right fund to customer)

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7. SEBI (The Referee)

Role: Regulate the entire MF industry

Full Form: Securities and Exchange Board of India

Powers:

• Grant/revoke AMC registration
• Issue regulations (SEBI MF Regulations 1996)
• Inspect AMCs (surprise audits)
• Impose penalties for violations
• Investor grievance redressal (SCORES portal)

Think of SEBI as: Supreme umpire ensuring fair play

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How They Work Together (Complete Flow)

1. Sponsor (HDFC Bank) establishes MF
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2. Appoints Trustees (Board of 4)
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3. Trustees hire AMC (HDFC AMC Ltd.)
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4. AMC launches schemes & manages portfolio
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5. Distributor sells scheme to Investor
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6. Investor invests ₹10,000
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7. RTA registers investor & allots units
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8. AMC buys stocks with pooled money
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9. Custodian holds the stocks securely
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10. Trustees monitor AMC quarterly
      ↓
SEBI oversees EVERYONE

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Comparison Table

Entity	Role	Reports To	Example
Sponsor	Founder/Promoter	SEBI	HDFC Bank
Trustees	Oversight	SEBI	Board of 4 independent members
AMC	Fund Manager	Trustees	HDFC AMC Ltd.
RTA	Record Keeper	AMC	CAMS, Karvy
Custodian	Asset Safekeeping	AMC	HDFC Custodial
Distributor	Sales & Advisory	AMFI Code	Banks, IFAs, Apps
SEBI	Regulator	Government	Securities regulator

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Exam Notes: Writing the Answer

Question: "Explain the key entities involved in a mutual fund." (10 Marks)

Answering Structure:

1. Introduction: "MF ecosystem has 7 key players..."
2. List each entity:
   • Sponsor (promoter)
   • Trustees (watchdog)
   • AMC (manager)
   • RTA (record keeper)
   • Custodian (securities vault)
   • Distributor (seller)
   • SEBI (regulator)
3. Diagram: Draw the flow (Sponsor → Trustees → AMC → Investor)
4. Conclusion: "Each entity has specific role ensuring investor protection"

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Quiz Time! 🎯

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