"Put not your trust in money, but your money in trust" ‐ Oliver Wendell Holmes

Mutual fund is a trust that collects money from investors who share a common financial goal and invest the proceeds in different asset classes, as defined by investment objective simply like a financial goal and invest the proceeds in different asset classes, as defined by investment objective, simply like a financial intermediary.

A mutual fund established under the Indian Trust Act to raise money through, the sale of units to the public for investing in the capital market The funds thus collected as per the directions of asset management company for invested. The mutual fund has to be SEBI registered

The SEBI (Mutual Funds) Regulations 1996 is a set of rules that regulate selling of units of mutual funds on the Stock Exchange of India. Mutual Funds can be broadly defined as a trust in which the public can invest under more than one scheme to invest in securities. This includes gold, financial instruments related to gold, money market instruments or real estate assets.

List of all stakeholders in Indian mutual fund industry is as follows:

1. Reserve Bank of India (RBI)
2. Securities and Exchange Board of India (SEBI)
3. Association of Mutual Funds in India (AMFI)
4. Ministry of Finance
5. Self Regulatory Organization (SROs)
6. Income Tax Regulations
7. Investors' Associations

A mutual fund operates on a trifurcation , starting with the creation of a trust consisting of an asset management company (AMC), trustees, and a sponsor. Like a company, the sponsor promotes the event. Under the supervision and approval of SEBI (Securities and Exchange Board of India), the trustees, who are essential to the trust, hold the assets of the mutual fund on behalf of the unit holder

Sponsor:
An influential investor who generates demand for a security due to their favorable opinion of it is known as a sponsor. The sponsor establishes the AMC, raises money, and establishes a mutual fund trust. In addition to contributing at least 40% of the AMC's net worth, the sponsor applies for mutual fund registration.

An asset management company (AMC) is a business that allocates the combined funds of its clients to securities that align with their stated financial goals. More investment options and diversification are offered to investors by asset management firms. AMCs oversee mutual funds, hedge funds, and pension plans; they are compensated by their clients through commissions or service fees.

The sponsor or the trustee, if permitted by the trust deed, shall designate an asset management firm that has received SEBI approval. The hiring of an asset management A majority of the trustees or 75% of the scheme's unit holders have the authority to dissolve the company. Any modification to the asset management company's appointment requires SEBI's an unit holders prior approval

Trustee:
The trustees act as a separate entity to safeguard investors' interests and guarantee adherence to SEBI (Mutual Fund) rules. For the benefit of the unit holders, the mutual fund's assets are held in trust by the Board of Trustees or Trustee Company. To manage the funds and create schemes for the mutual fund, they designate an Asset Management Company (AMC). If SEBI rules are broken or the interests of the unit holders are not safeguarded, the trustee may also take legal action against the AMC or even penalise it.

Disqualification From Being Appointed As Trustees:

1. A mutual fund shall appoint trustees in accordance with these regulations. A person shall not be eligible to be appointed as a trustee unless:
   1. He is a person of ability, integrity and standing; and
   2. Has not been found guilty of moral turpitude; and
   3. Has not been convicted of any economic offence or violation of any securities laws; and
   4. Has furnished particulars as specified in Form C.
2. No asset management company and no director (including independent director), officer or employee of an asset management company shall be eligible to be appointed as a trustee of any mutual fund.
3. No person who is appointed as a trustee of a mutual fund shall be eligible to be appointed as a trustee of any other mutual fund.
4. Two-thirds of the trustees shall be independent persons and shall not be associated with the sponsors or be associated with them in any manner whatsoever.
5. In case a company is appointed as a trustee then its directors can act as trustees of any other trust provided that the object of the trust is not in conflict with the object of the mutual fund.

Role Of Market Intermediaries:

Custodian:

A custodian is a person who carries on the business of providing custodial services to the client. The custodian keeps the custody of the securities of the client. The custodian also provides incidental services such as maintaining the accounts of securities of the client, collecting the benefits or rights accruing to the client in respect of securities. The mutual fund must appoint a custodian to handle its schemes, notifying the Board within fifteen days. Gold exchange traded fund schemes can have gold-related assets in SEBI-registered custody, silver exchange traded fund schemes can have silver-related assets, and real estate mutual fund schemes can have title deeds in SEBI custody.

Transfer Agents:

'Transfer agents' services include issue and redemption of mutual fund units, preparation of transfer documents and maintenance of updated investment records. They also record transfer of units between investors where the depository does not function. They also facilitate investors to get customised reports.

Depository:

A depository facilitates the smooth flow of trading and ensures the investor's confidence in their investment in securities.

Eligibility Criteria for Registration of Mutual Fund:

For the purpose of grant of a certificate of registration, the applicant has to fulfil the following, namely:

• The sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions.
• The definition of sound track record is given under the regulation.

Code of Conduct of Mutual Funds:

• Schemes should not be organized for the benefit of sponsors or AMC directors.
• Adequate, fair, accurate, and timely information should be disseminated to all stakeholders.
• Excessive business concentration with broking firms or associates should be avoided.
• Scheme-wise segregation of bank and securities accounts is essential.
• Investment should align with investment objectives stated in offer documents.
• Unethical means should not be used to sell or market schemes.
• High standards of integrity and fairness should be maintained by trustees and AMCs.

Restriction on Investment by Mutual Funds:

• Schemes can't invest more than 10% of their NAV in debt instruments rated below investment grade by a Credit Rating Agency.
• The limit can be increased to 12% with approval from the Board of Trustees and Board of Directors of AMC.
• Mutual funds can't invest in unlisted debt instruments, except Government Securities and money market instruments.
• They can invest in unlisted non-convertible debentures up to 10% of the debt portfolio.
• Mutual funds can't own more than 10% of a company's paid-up capital carrying voting rights.
• Investment transfers must be done at the prevailing market price and align with the scheme's investment objective.
• Schemes can invest in other schemes under the same asset management company or any other mutual fund without fees.
• All securities must be purchased or transferred in the mutual fund scheme's name.
• No mutual fund scheme can invest in unlisted security of an Associate or Group Company of the Sponsor.

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