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Todays topic is Drill Down of Mutual Funds.
Before we understand the Drill downs, we should
know about the players of a mutual funds.
1. Sponsor: Sponsor is the company, which
sets up the Mutual Fund as per the provisions
laid down by regulators of respective countries.
2. Fund manager or Asset Management Company:
The fund manager or Asset Management Company
is responsible for implementing a fund's investing
strategy and managing its portfolio trading
activities. The fund manager employs a large
number of professionals for investment and
research. Fund Managers income comes from
the management fees, it charges for the schemes
it manages. The management fees, is calculated
as a percentage of net assets managed.
3. Board of Trustees or Board of Directors:
Trustees or Directors are an important link
in the working of any mutual fund. They are
responsible for ensuring that investors’
interests in a scheme are properly taken care.
They do this by a constant monitoring of the
operations of the various schemes. In return
for their services, they are paid trustee
or Director fees, which are normally charged
to the scheme.
4. Distributors: Distributors earn a commission
for bringing investors into the schemes of
a mutual fund. Distributors are mainly the
commercial banks which sell the mutual funds.
5. Transfer Agent or Registrars: Mutual fund
transfer agents perform many important tasks,
like maintaining records of shareholders'
accounts, overseeing dividend or Coupan payments,
and responding to shareholder requests for
account statements, income tax forms, and
transaction confirmations.
6. Custodian or Depository: The custodian
maintains custody of the securities in which
the scheme invests.
7. Fund administrators: Fund administrators
perform a wide variety of services for funds
which could include the following:
Calculate the net asset value of the fund;
Independently verify the assets and valuation
of those assets held by the fund;
And, handle all shareholder relation issues
(like, subscription, redemption, transfer,
distribution of the NAV and management reports).
8. Auditor: Every mutual fund has an independent
auditor who provide the reports to Board of
trustees or board of directors. The Auditors
have free hand in everything from audit of
Fund administration to Fund accounting procedures
to NAV calculations to the compliance etc.
Going ahead, let us understand the structure
of a mutual fund.
A Legal structure of a mutual Fund is usually
“a trust” or a “corporate” with board
of trustees or board of directors working
for protecting and benefitting of its investors.
A K.Y.C Officer in a bank needs to collect
following documents from the Fund.
1. Prospectus: A mutual fund prospectus is
a document detailing the investment objectives
and strategies of a particular fund or group
of funds, as well as the finer points of
the fund's past performance, managers and
financial information. The details of the
Fund manager or the asset management company,
custodian, transfer agent and distributor
information is also detailed here.
2. Fact Sheet or KIID’s (If available):
A mutual fund fact sheet or Key Investor Information
Documents is a basic two to three-page document
that gives an overview of a mutual fund. For
potential investors, this is a necessary and
easy report to read. It describes the key
information for a Fund, such as the nature
of the Fund, its charges, and the risks associated
with investing in it.
3. Trust Deed or M.O.A and A.O.A: The trust
deed or M.O.A and A.O.A will have the details
of sponsor who have created the trust or mutual
fund company and the details of the trustees
or directors.
4. Certificate of incorporation or articles
of incorporation.
5. Regulation proof often available in public
sources.
6. The Investment Management Agreement, which
is an agreement between fund and the investment
manager. The Fund will pay to the Investment
Manager, as compensation for the services
rendered, facilities furnished, and expenses
borne by the Investment Manager, a management
fee.
K.Y.C Officer starts with identification and
verification for Controllers of the mutual
funds who are
1. The board of trustees and
2. Fund Manager or Asset Management Company.
Let us begin with drill down of a mutual fund
structure:
1. The creator of the Mutual Fund: The creator
of the Mutual Fund is the sponsor which is
usually in the form of corporate. The K.Y.C
officer is not required to drill down the
sponsor but just identify and verify the same.
Identification is available in the Prospectus
and verification can be done either through
certificate of formation available through
public sources, or through its annual report.
2. Board of trustees or Board of Directors:
Identify and verify the board of trustees/Board
of Directors.
3. Since the fund manager is mostly the corporate,
K.Y.C officer may have to ask for details
of owners of Fund manager and their directors.
Most of the cases, the Fund manager is the
subsidiary of the sponsor itself.
That’s all for today.
Thank you.
Hope you all now have a fair idea about the
Mutual Fund drill down and you may now apply
this knowledge to your day to day work.
I will come back with more such information
in K.Y.C Bytes.
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Have a nice day ahead.
Stay Tuned.
