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al fund helps investors in understanding their rights as well as the obligations of the fund. The legal structure of Indian mutual fund is unique and differs from that in the US and the UK.

In the US, funds are set up as investment companies which could be a corporation, partnership or unit investment trust whereas in the UK, funds are set up in two alternative structures-open-ended funds are set up in the form of trusts while closed-ended funds are set up as corporate entities. In India, all type of funds (whether open-ended or closed-ended) are set up as unit trusts. The structure is defined by Sebi (Mutual Fund) Regulations, 1996. The key constituents of Indian mutual funds are:

Sponsor:

The sponsor is akin to a promoter of a company as he gets the mutual fund registered with Sebi. The sponsor is defined under Sebi regulations as a person who, acting alone or in combination with another body corporate, establishes a mutual fund. The sponsor forms a trust, appoints the board of trustees, and has the right to appoint the asset management company (AMC) or fund manager.

Trustees:

The mutual fund can be managed by a board of trustees or a trust company. The board of trustees is governed by the Indian Trust Act whereas a trust company is governed by the Companies Act, 1956. The trustees act as a protector of unit holders' interests. They do not directly manage the portfolio of securities and appoint an AMC (with approval of Sebi) for fund management. If an AMC wishes to float additional or different schemes, it will need to be approved by the trustees. Trustees play a critical role in ensuring full compliance with Sebi's requirements.

Asset Management Company:

The AMC is appointed by trustees for managing fund schemes and corpus. An AMC functions under the supervision of its own board of directors and also under the directions of trustees and Sebi. The market regulator has mandated the limit of independent directors to ensure independence in AMC workings.

The major obligations of AMC include:

Ensuring investments in accordance with the trust deed, providing information to unit holders on matters that substantially affect their interests, adhering to risk management guidelines as given by the Association of Mutual Funds in India and Sebi, timely disclosures to unit holders on sale and repurchase, NAV, portfolio details, etc.

Custodian and depositories:

The fund management includes buying and selling of securities in large volumes. Therefore, keeping a track of such transactions is a specialist function. The custodian is appointed by trustees for safekeeping of physical securities while dematerialised securities holdings are held in a depository through a depository participant. The custodian and depositories work under the instructions of the AMC, although under the overall direction of trustees.

Registrar and transfer agents:

These are responsible for issuing and redeeming units of the mutual fund as well as providing other related services, such as preparation of transfer documents and updating investor records. A fund can carry out these activities in-house or can outsource them. If it is done internally, the fund may charge the scheme for the service at a competitive market rate.