Synopsis
- 1 Understanding The Three-Tier Structure Of Mutual Funds In India
- 2 What is the Structure of Mutual Funds?
- 3 Structure Of Mutual Fund – A 3-Tier Structure
- 4 Fund Sponsor
- 5 Trust and Trustees
- 6 Asset Management Companies (AMCs)
- 7 Other Honourable Participants in the Structure of Mutual Funds
- 8 Custodian
- 9 Registrar and Transfer Agent (RTA)
- 10 Fund Accountant
- 11 Auditor
- 12 Broker
- 13 Dealers
- 14 Intermediaries/Distributors
- 15 A Fund House Structure – Example
- 16 Importance of the Three-Tier Structure in Mutual Funds
- 17 How the Structure of Mutual Funds Affects Investment Decisions
- 18 Performance of Mutual Funds – How Influential is AMC
- 19 Frequently Asked Questions (FAQs)
- 20 Conclusion
Understanding The Three-Tier Structure Of Mutual Funds In India
Investing in mutual funds can be a daunting task, especially if you’re unsure about the structure and how it operates. Did you know that Mutual Funds in India function within a three-tier structure ensuring transparency, accountability, and investor protection? This blog was crafted to help simplify this seemingly complex system, guiding you through each tier—fund sponsor, trustees, and asset management company—and their respective roles.
Ready? Let’s dive into the world of mutual funds!
Key Takeaways
- Mutual funds in India have a three – tier structure consisting of fund sponsors, trustees, and asset management companies (AMCs).
- The fund sponsor starts the mutual fund, selects the trustees and AMCs, and promotes sales and growth.
- Trustees oversee investor interests, ensure regulatory compliance, protect investments, and manage fund operations.
- AMCs (with their investment manager) manage the investment portfolios of mutual funds, make investment decisions, communicate with investors, and comply with regulations.
What is the Structure of Mutual Funds?
The structure of mutual funds in India consists of a three-tier system, which includes the fund sponsor, trust and trustees, and asset management companies (AMCs).
The Evolution of Mutual Fund Structure in India
Mutual funds in India came to life in 1963 with the Unit Trust of India (UTI). The Reserve Bank of India was in charge. But, there was a need for change. In time, a three-tier structure took shape.
The Mutual Fund history been broadly classified into 5 Phases and the details are below for reference:
PHASE | YEAR FRAME | ACTIVITY |
Phase I | 1964-1987 |
|
Phase II | 1987-1993 |
|
Phase III | 1993-2003 |
|
Phase IV | 2003-2014 |
|
Phase V | 2014-Present |
|
This system has a fund sponsor, trustees and an asset management company (AMC). More AMCs started popping up with different mutual fund investments plans. Now, we see many types of funds for all kinds of investors!
Did You Know?
The Overall size of Indian Mutual Fund Industry has grown to ₹46.72 trillion as on 31st October 2023. This is 5 fold increase when compared with the previous decade.
Structure Of Mutual Fund – A 3-Tier Structure
Structure of Mutual funds in India have a three-tier structure. This includes the fund sponsor, trustees, and asset management company (AMC). The first layer of this system is called the fund sponsor.
Their job is to set up the mutual fund and follow all rules.
Moving on to the second level, we see trustees. Trustees look after investor interests and make sure that rules are followed. They keep things fair for investors!
The third part of this system is the asset management company (AMC). AMCs take care of managing the mutual fund’s money. They decide where to put it so it can grow.
A unique thing about mutual funds in India is they work like a trust. This means that while AMCs manage assets, legal ownership sits with trustees! It shows how roles differ at each tier; each one has its own tasks.
The three-tier way not only helps separate duties but also boosts investor safety. Each layer must do its task well for successful teamwork!
Fund Sponsor
The fund sponsor plays a crucial role in the structure of mutual funds, providing the initial capital and expertise to create or float a mutual fund. A sponsor, whether an individual or entity, holds the authority to create a mutual fund with the goal of earning income through effective fund management. This involves utilizing an associate company to handle the fund’s investments. Additionally, the sponsor plays a role as a promoter for the associate company.
Key Roles & Responsibilities of Fund Sponsor
A fund sponsor holds a vital part in structuring of mutual funds. They do many important jobs.
- The fund sponsor starts the mutual fund. They act as its promoter.
- They set up the mutual fund as a public trust.
- They draw investors to the fund.
- The fund sponsor picks the trustees and the asset management company.
- Another job of the fund sponsor is to follow rules set by the Securities and Exchange Board of India (SEBI).
- They must also make sure that unit holders’ interests stay safe.
- Lastly, they are in charge of promoting more sales and growth for the mutual fund.
Criteria to Become a Sponsor
To become a sponsor of a mutual fund in India, there are certain criteria that need to be met. Here are the important requirements:
- Experience: The sponsor must have at least five years of experience in the financial services industry.
- Promoter: The sponsor is responsible for promoting and establishing the mutual fund.
- Administration: The sponsor plays a key role in the administration of the mutual fund.
- Appointment: The sponsor appoints the trustees and asset management company (AMC) to manage the operations of the fund.
- The sponsor’s net worth from the preceding year should surpass the capital contribution made to the AMC.
- The sponsor must have generated profits in three of the last five years, accounting for deductions in depreciation, interest, and taxes.
- Current or prospective mutual fund sponsors should have no record of fraud or convictions for any offenses.
Trust and Trustees
Trust and Trustees play a crucial role in the structure of mutual funds by ensuring compliance with regulations and safeguarding the interests of investors. The fund sponsor establishes a trust using an agreement called the trust deed, appointing trustees to oversee it. These trustees serve as the main custodians or primary guardians of funds and assets, and they can either be organized through a Trustee Company or a Board of Trustee(s).
Key Roles & Responsibilities of Trust and Trustees
The trust and trustees have important roles and responsibilities in the structure of mutual funds. They are responsible for maintaining investor trust and overseeing the performance of the fund. Here are some key responsibilities:
- Fiduciary Duties: Trust and trustees have a legal obligation to act in the best interests of the unit holders and ensure compliance with regulations.
- Asset Management: They hold the fund’s assets on behalf of the unit holders and oversee their management, ensuring that they are invested wisely.
- Regulatory Compliance: Trust and trustees ensure that the mutual fund complies with all regulatory requirements imposed by relevant authorities.
- Investor Protection: They protect the interests of the unit holders by safeguarding their investments and ensuring transparency in operations.
- Trust Management: Trust and trustees manage the operations of the trust, making sure that it functions efficiently and effectively.
- Performance Monitoring: They monitor the performance of the mutual fund to assess its success in meeting its objectives.
- Unit Holder Interests: Trust and trustees advocate for the interests of unit holders by representing them in matters concerning the mutual fund.
- Fund Administration: They oversee administrative tasks such as record-keeping, reporting, distribution of dividends, etc., ensuring smooth operation of the mutual fund.
- Operations Oversight: Trust and trustees provide oversight on various operational aspects, including risk management, compliance monitoring, audit processes, etc.
- Trustee Responsibilities: In addition to their general responsibilities, trust and trustees may have specific duties outlined in their appointment or agreement documents.
Asset Management Companies (AMCs)
Asset Management Companies (AMCs) play a crucial role in the structure of mutual funds, as they are responsible for managing the investment portfolios on behalf of investors. Operating under the oversight of trustees and SEBI, they function with their board of directors. Learn more about their key roles and responsibilities below!
Key Roles & Responsibilities of AMC
Here are the key responsibilities they have:
- Manage the Fund: The AMC – mutual fund company, is responsible for the day-to-day management of the fund. They make investment decisions, handle asset management, and oversee portfolio management.
- Scheme Launch: The AMC has the authority to launch new schemes based on market conditions and investor demand. They analyze market trends and create suitable investment opportunities for investors.
- Scheme Closure: Similarly, the AMC can also close old schemes if they are not performing well or if there is low investor interest. This ensures that investors’ money is not tied up in underperforming funds.
- Fee Charges: The AMC charges a fee for managing the fund and making investment decisions that benefit the investors. This fee is usually a percentage of the assets under management (AUM) and covers their services.
- Investor Communication: The AMC is responsible for communicating with investors regularly. They provide information about fund performance, upcoming changes, and any other relevant updates to keep investors informed.
- Regulatory Compliance: The AMC must comply with all regulatory requirements set by authorities like SEBI (Securities and Exchange Board of India). They ensure that all operations are conducted within legal boundaries to protect investors’ interests.
Types of AMCs
There are different types of Asset Management Companies (AMCs) based on their assets under management (AUM). Some key types include:
- Large AMCs: These AMCs have a significant amount of AUM and manage funds across various asset classes, such as equity, debt, and hybrid funds.
- Small AMCs: These AMCs have a smaller AUM compared to larger ones. They may specialize in managing funds within specific sectors or asset classes.
- Boutique AMCs: These specialized AMCs focus on niche investment strategies or cater to specific investor segments. They may offer unique products that are not widely available.
- Foreign AMCs: These AMCs are established by foreign financial institutions and manage funds for investors in India. They bring global investment expertise and diversification opportunities.
- Bank-sponsored AMCs: Many banks have their own AMCs, which offer mutual fund products to their customers. These AMCs leverage the bank’s distribution network to reach a larger investor base.
- Government-owned AMCs: Some AMCs are owned by government entities and manage funds on behalf of the government or public sector organizations.
- Index Fund Providers: Certain AMCs specialize in offering index funds, which aim to replicate the performance of a specific market index, such as the Nifty 50 or Sensex.
- Exchange-traded fund (ETF) Providers: These AMCs manage ETFs, which are passively managed funds traded on stock exchanges like individual stocks.
Did You Know?
The Asset Under Management (AUM) of Indian Mutual Fund industry’s milestones are very lucrative in numbers.
- ₹10 trillion for the first time in May 2014.
- ₹20 trillion for the first time in a span of 3 year – August, 2017.
- ₹30 trillion for the first time by November, 2020.
Other Honourable Participants in the Structure of Mutual Funds
Other important participants in the structure of mutual funds include custodians, registrars and transfer agents (RTAs), fund accountants, auditors, brokers, dealers, and intermediaries/distributors.
Custodians are responsible for holding and safeguarding the securities owned by mutual funds. They ensure that the assets are securely stored and transactions are conducted correctly.
Registrars and transfer agents (RTAs) handle the registration of investors’ holdings in mutual funds. They also manage investor services such as updating contact information and facilitating transactions.
Fund accountants handle financial reporting and record-keeping for mutual funds. They calculate the net asset value (NAV) of the fund, which determines its price per share.
Auditors review the financial statements of mutual funds to ensure accuracy and compliance with regulations.
Brokers execute buy or sell orders on behalf of mutual funds in stock markets or other trading platforms.
Dealers facilitate buying or selling of units/shares directly to investors at prevailing NAVs without going through a stock exchange.
Intermediaries/distributors play a crucial role in marketing and selling mutual fund products to individual investors. They provide guidance on investment options based on an investor’s risk profile and objectives.
Custodian
A Custodian is an organization entrusted with the secure storage of securities. These entities are registered with SEBI and are responsible for facilitating the transfer and delivery of units and securities. Furthermore, they play a critical role in assisting investors in updating their holdings at specific intervals and monitoring their investments.
Roles of Custodian
A custodian plays a crucial role in mutual funds, specifically in India. They are responsible for safeguarding the securities owned by the mutual fund. Here are some key roles of a custodian:
- Safekeeping: Custodians hold and protect the securities owned by the mutual fund.
- Transfer and Settlement: They facilitate the transfer and settlement of securities on behalf of the mutual fund.
- Asset Protection: Custodians ensure the safety and integrity of the mutual fund’s assets.
- Compliance: They must follow SEBI regulations and guidelines to maintain transparency and protect investor interests.
- Performance Monitoring: SEBI closely monitors the performance of custodians to ensure compliance with regulations.
Registrar and Transfer Agent (RTA)
The Registrar and Transfer Agent (RTA) plays an important role by managing the registration and transfer of units for investors. Learn more about their roles and responsibilities in ensuring smooth operations.
Roles of RTA
The Registrar and Transfer Agent (RTA) plays an important role in the administration and management of mutual funds in India. Here are the key roles that RTAs perform:
- Mutual funds administration: The RTA handles various administrative tasks related to mutual funds, such as maintaining investor records, processing transactions, and ensuring regulatory compliance.
- Investor transactions: RTAs process investor transactions, including purchases, redemptions, and transfers of mutual fund units. They ensure that these transactions are carried out accurately and efficiently.
- Account statements: RTAs issue account statements to investors, providing them with information about their investments, including the number of units held and the value of their investment.
- Investor queries: RTAs handle investor queries related to mutual funds. They provide assistance and answer questions about investments, account balances, transaction status, and other relevant information.
- Industry coordination: RTAs coordinate with other industry participants like asset management companies (AMCs), custodians, brokers, and regulators to ensure smooth functioning of mutual fund operations.
- Transfer of mutual fund units: When investors want to transfer their mutual fund units to someone else’s name or switch between different funds offered by the same AMC, RTAs facilitate this process by updating the ownership details on record.
Fund Accountant
The Fund Accountant ensures accurate and timely recording of fund transactions and maintaining financial records.
Roles of Fund Accountant
A fund accountant has important roles and responsibilities in the structure of mutual funds. Here are some key roles of a fund accountant:
- Handling day-to-day accounting for mutual or institutional funds
- Managing accounting for capital activity like subscriptions and redemptions
- Ensuring accurate financial reporting for the funds
- Valuing assets held by the funds
- Assisting with investment analysis and securities pricing
- Calculating the Net Asset Value (NAV) of the funds
- Providing audit support to ensure regulatory compliance
Auditor
The auditor – who conducts independent audits to ensure compliance with regulations and accurate financial reporting.
Roles of Auditor
Here are the key responsibilities of an auditor:
- Scrutinizing financial records: Auditors review and verify the accuracy of accounting records and financial statements of mutual fund schemes.
- Ensuring financial integrity: They ensure that the collected funds are used properly and certify that there is no fraud within the asset management company (AMC).
- Detecting fraud: Auditors have the responsibility to detect any fraudulent activities within the AMC, ensuring transparency and protecting investors’ interests.
- Certified public accountant: They are authorized professionals who specialize in financial auditing and have expertise in maintaining the safety and transparency of mutual funds.
Broker
The broker helps in facilitating the buying and selling of securities on behalf of the mutual fund. They act as intermediaries between the fund and the market. They will be licensed by SEBI to manage the trading accounts of investors. To understand more about their roles and responsibilities, keep reading!
Roles of Broker
Here are the key roles and responsibilities of a broker:
- Facilitates Buying and Selling: Brokers act as intermediaries between investors and the mutual fund. They help investors buy or sell mutual fund units based on their investment preferences.
- Provides Market Expertise: Brokers have in-depth knowledge of various investment options and market trends. They provide valuable insights and recommendations to investors, helping them make informed investment decisions.
- Executes Trades: Brokers execute trades on behalf of investors. They place orders to buy or sell mutual fund units at the prevailing market prices, ensuring timely execution of transactions.
- Negotiates with Fund Managers: Brokers negotiate with fund managers to get the best possible deals for their clients. They aim to secure favorable terms and conditions, such as competitive pricing and lower transaction costs.
- Offers Research and Analysis: Brokers conduct research and analysis on different mutual funds available in the market. They evaluate fund performance, risk factors, and other relevant information to assist investors in selecting suitable funds.
- Provides Regular Updates: Brokers keep investors updated about their investments by providing regular reports on portfolio performance, dividend payouts, and any changes in market conditions that may impact their investments.
- Assists with Documentation: Brokers assist investors in completing the necessary documentation required for investing in mutual funds. They ensure compliance with regulatory requirements and help streamline the investment process.
Dealers
Dealers are responsible for executing trades in the capital and money market instruments, on behalf of the fund and ensuring efficient buying and selling of securities.
Roles of Dealers
Dealers play an important role in the three-tier structure of mutual funds in India. Here are some key responsibilities and tasks they handle:
- Recommending investments: Dealers help retail investors choose suitable mutual fund schemes based on their financial goals and risk tolerance.
- Facilitating transactions: Dealers assist investors in buying and selling mutual fund units, ensuring smooth and efficient transactions.
- Providing market insights: Dealers stay updated with market trends and share valuable insights with investors, helping them make informed investment decisions.
- Maintaining client relationships: Dealers build strong relationships with their clients, offering personalized advice and support throughout their investment journey.
- Ensuring compliance: Dealers adhere to regulatory requirements set by the Indian financial market to protect investors’ interests and maintain transparency.
Intermediaries/Distributors
Intermediaries/Distributors play a vital role in the structure of mutual funds by facilitating the sale and distribution of mutual fund units to investors.
Roles of Intermediaries/Distributors
Intermediaries/Distributors assist investors in buying and selling funds based on their financial goals and risk appetite. Here are some of their key roles:
- Guiding investors: Intermediaries provide guidance and advice to investors, helping them make informed decisions about which mutual funds to invest in.
- Educating investors: They educate investors about the benefits and risks associated with different mutual funds, helping them understand the investment process.
- Recommending suitable funds: Intermediaries assess an investor’s financial goals, risk tolerance, and investment time horizon to recommend suitable mutual funds.
- Facilitating transactions: They facilitate the buying and selling of mutual fund units on behalf of investors, ensuring smooth transaction processes.
- Providing customer service: Intermediaries offer customer support services, addressing queries and concerns raised by investors.
- Monitoring investments: They keep track of market trends and performance of mutual funds, providing regular updates to investors regarding their investments.
- Managing paperwork: Intermediaries handle the necessary documentation required for investing in mutual funds, ensuring compliance with regulatory requirements.
- Receiving commissions: Mutual fund distributors receive commissions for their services, typically based on the volume of funds they sell.
A Fund House Structure – Example
A fund house structure is an example of how a mutual fund is organized and managed. Let’s say there’s an investment company that wants to start a mutual fund. They will need to follow the three-tier structure.
First, they would appoint a trustee board, which would be responsible for overseeing the operations of the mutual fund and ensuring regulatory compliance. The trustee board acts in the best interests of the unit holders or investors.
Next, they would set up an asset management company (AMC). The AMC plays a crucial role in managing the assets of the mutual fund and making investment decisions on behalf of the investors.
They are responsible for creating and managing different schemes that investors can choose from.
The sponsor, which is usually an established financial institution or company, promotes and establishes the mutual fund. They play a vital role in setting up capital for initial investments and marketing strategies to attract potential investors.
In summary, a typical fund house structure consists of a sponsor as the promoter, trustees safeguarding investor interests, and an asset management company making investment decisions on behalf of investors.
Typical example is as below for reference.
TIER | TYPE | Example Company |
Tier I | Fund Sponsor | Sun Life (India) AMC Investment Inc. |
Tier II | Trust and Trustees | Aditya Birla Sun Life Trustee Pvt. Ltd. |
Tier III | Asset Management Company (AMC) | Aditya Birla Sun Life AMC Limited. |
Did You Know?
- The number of investor folios has grown to 15.96 crores as on 31st October 2023 which is almost double when compare to 31st October 2018 which stood at 7.90 Crores.
- With respect to the Systematic Investment Plan (SIP) which actually attracted many Indian’s to fall into Mutual Funds, the total number of SIP accounts was seen as 7.30 Crores as on 31st October, 2023.
Importance of the Three-Tier Structure in Mutual Funds
The three-tier structure in mutual funds is important as it provides protection for investors, efficient management of funds, and transparency in operations.
Protection for investors
The three-tier structure of mutual funds in India provides important protection for investors. This means that safeguards and accountability are put in place to ensure the interests of investors are protected.
The trustee, who acts as a custodian, is responsible for safeguarding the assets of the mutual fund and ensuring that all operations are carried out in the best interest of the investors.
Additionally, the asset management company (AMC) plays a crucial role in managing the investment portfolio and making sound investment decisions on behalf of the investors. These measures help to provide transparency and confidence to investors, allowing them to trust that their investments are being managed with their best interests in mind.
Efficient management of funds
The three-tier structure of mutual funds in India plays a vital role in ensuring the efficient management of funds. This structure involves sponsors, trustees, and asset management companies (AMCs) working together to effectively allocate and manage resources.
Sponsors are responsible for creating the mutual funds and contributing to their optimal management. Trustees play a crucial role in managing the funds in the best interest of investors, ensuring their efficient use.
AMCs handle day-to-day operations, implementing strategic investment and portfolio management strategies for robust fund administration. The three-tier structure provides a systematic approach that enhances transparency, organization, and trustworthiness in fund supervision.
Transparency in operations
The three-tier structure of mutual funds in India plays a crucial role in ensuring transparency in their operations. This means that investors can have a clear view of how their money is being managed and invested.
The trustees, who are part of this structure, oversee the operations of mutual funds and work to protect the interests of investors. They ensure that the fund follows all regulations and guidelines set by the regulatory authorities.
Additionally, the asset management company (AMC) is responsible for managing the investments and day-to-day operations of mutual funds. Their role includes conducting research, making investment decisions, and communicating with investors about fund performance.
How the Structure of Mutual Funds Affects Investment Decisions
The structure of mutual funds has a significant impact on investment decisions. The Fund Sponsor, Trustees, and Asset Management Company (AMC) collectively determine the fund’s investment strategies and objectives.
They make important decisions about how to manage the fund’s investments, such as which stocks or bonds (setting up equity funds or debt funds or balanced funds) to buy or sell.
Investors rely on these entities to make informed choices that align with their investment goals. The structure ensures that there is proper oversight and regulatory compliance in managing the fund’s assets.
Additionally, the structure provides investor protection by establishing checks and balances within the system. Trustees oversee the operations of the mutual fund to ensure that it operates in accordance with regulations.
This helps safeguard investors interests and promotes transparency.
Furthermore, efficient management of funds is possible due to this three-tier structure. The Fund Sponsor takes responsibility for decision-making, while the AMC manages the daily operations of buying and selling securities based on market conditions.
Can check out more on mutual funds vs stocks
Performance of Mutual Funds – How Influential is AMC
The performance of mutual funds is influenced by the AMC, which plays a crucial role within the three-tier structure. The AMC is responsible for managing the mutual fund and making investment decisions on behalf of the investors.
Their expertise and experience in analyzing market trends and selecting suitable investments (money market fund, offshore fund, international fund, debt instrument, corporate bond, bond fund, exchange traded fund, liquid fund, equities/stocks etc) can have a significant impact on the performance of the fund.
AMCs are also responsible for ensuring efficient management of funds, ensuring that investor’s money is well-utilized to achieve maximum returns. They work towards generating higher returns for investors through effective portfolio management strategies.
Moreover, AMCs play a vital role in providing transparency in operations. They are accountable for maintaining accurate records, publishing regular reports, and providing timely information about investments to investors.
This transparency helps investors make informed decisions about their investments.
Overall, the functioning and efficiency of an AMC greatly influence the performance of mutual funds as they directly handle investment decisions and ensure effective management. Investors should carefully evaluate an AMC’s track record, expertise, and reputation before investing in any mutual fund to maximize their chances of achieving their financial goals.
Frequently Asked Questions (FAQs)
What is the oldest mutual fund scheme in India?
Unit Trust of India (UTI) was launched 60 years ago which is considered as the oldest mutual funds scheme in India.
What is the structure of mutual funds in India?
The structure of mutual funds in India is a three-tier one. It consists of a fund sponsor, trustees, and an asset management company (AMC).
It is designed to build confidence in the mutual fund industry by ensuring regulatory compliance and efficient management of funds.
Can Non-Resident Indians (NRIs) invest in mutual funds?
Yes, Non-Resident Indians (NRIs) are allowed to invest in mutual funds in India. However, they must follow the rules of the Foreign Exchange Management Act (FEMA). NRIs can invest in Indian mutual funds on a repatriation basis with an NRE or FCNR account.
They can also invest on a non-repatriation basis. The process and required documents for NRI investment in Indian mutual funds were discussed previously, so make sure to check that out.
NRIs can invest through designated Authorized Dealers (ADs) under the Portfolio Investment Scheme (PIS) route. If you’re an NRI looking to invest in mutual funds, refer to the Guide Book for Overseas Indians for information on taxation and other important aspects of investing.
What is a sinking fund?
A sinking fund is an account that a corporation sets aside to pay off its debt. It ensures that there are enough funds available for debt repayment. In the structure of mutual funds in India, a sinking fund is not explicitly mentioned as one of the three tiers, but it plays a crucial role in managing debt.
Investing in a sinking fund comes with some risk, but it provides a secure and predetermined way to repay debt. Different types of debt can have their own sinking funds with specific terms outlined in the bond agreement.
By using a sinking fund, corporations show their commitment to managing debt and making timely repayments.
What is the lock-in period for mutual funds?
Mutual funds in India have a lock-in period, which is a specified time duration during which investors are not allowed to redeem or sell their mutual fund units. The lock-in period varies depending on the type of mutual fund scheme.
For closed-ended funds and solution-oriented schemes, there is a restriction period that prevents immediate redemption or selling of units. Tax-saving schemes (ELSS) typically have a minimum lock-in period of 3 years.
It’s important for investors to evaluate their investment objectives and consider their financial requirements before investing in mutual funds with lock-in periods. This helps them understand the time constraint and make informed decisions about their investments.
Payment to Distributors
Mutual fund distributors play an important role in the investment process, and they earn commissions for the services they provide. These commissions serve as their payment or earnings.
Distributors receive compensation from various sources, such as asset management companies (AMCs) and mutual fund houses. The amount of payment can vary depending on factors like the size of the investment or the type of mutual fund.
It’s important for investors to understand that these payments are part of a distributor’s income and can potentially influence their recommendations. By knowing how distributors are compensated, investors can make more informed decisions when choosing a mutual fund or working with a distributor.
Conclusion
In conclusion, understanding the three-tier structure of mutual funds in India is crucial for investors. It helps ensure transparency, accountability, and investor protection. By knowing the roles and responsibilities of each participant in the structure, investors can make informed decisions and have confidence in their investments.
So, take the time to understand this structure and choose your mutual fund wisely.