Mutual Fund Compostion

Asset Management Company

The Management Company is the party responsible for the overall operation of a Mutual Fund. Often times, the Management Company hires or "contracts" individual parties to handle the day-to-day operation of the Mutual Fund. These parties include:



· Transfer Agent
· Custodian
· Underwriter
· Investment Advisor

Transfer Agent


The Management Company hires the Transfer Agent to sell shares of the Mutual Fund to individual investors. The Transfer Agent is usually a commercial bank or financial institution that is primarily responsible for maintaining records of individual investors within a mutual fund.

The investor will contact the Transfer Agent to buy or sell shares of the mutual fund. For example, lets say our investor wishes to purchase 100 shares of XYZ Mutual Fund. The investor would send his money into the Transfer Agent(See money arrow) and in return get the shares of the mutual fund in return from the Transfer Agent.

Investment Advisor / Investment Manager

The Management Company hires the Investment Advisor / Investment Manager to make all the investment decisions on behalf of the fund. Their job is to determine which securities to buy and sell based on the funds investment objective. Once they make that determination, they would then contract the services of a broker to execute the buy or sell trade. The date is which the Investment Advisor / Investment Manager and the Broker execute a transaction is referred to as trade date. For their services, the Investment Advisor / Investment Manager receives a fee of usually one half of one percent of the fund's total net assets.

The Investment Advisor / Investment Manager will always execute trades based on the investment objectives stated in the fund's prospectus. Once they execute and confirm the trade with the Broker, they inform the custodian of the transaction. This is done to ensure that the Custodian can account for the activity and ensure the movement of money and shares. The date in which the transaction is processed with the Custodian occurs on trade date +1.



Custodian

The Management Company hires the Custodian to handle the custody and record keeping of the stock certificates and other assets of a Mutual Fund. The Custodian must account for all the activity of the Mutual Fund. This involves processing trades, collecting dividend and interest income, paying expenses and substantiating all account balances. The custodian is responsible for reporting the Net Asset Value(NAV)of the Mutual Fund each day.

As investors buy in or sell out of a Mutual Fund, the Transfer Agent tracks and reports the activity to the Custodian. This enables the Custodian to keep accurate accounting and custody records of the Mutual Fund. It is important to note that the Investor and the custodian typically do not interact.


Underwriter

The Management Company hires the Underwriter to distribute fund shares to the investing public. The Underwriter ( referred to as a Distributor) only gets involved with the operation of a Load Fund. The Underwriter is rewarded for their services based on the number of shares that are distributed to individual investors.

The Underwriter interacts with the Investor, since the Underwriter will solicit & advertise to the Investor. The Investor will purchase the shares from the Underwriter. Once shares are purchased, the Underwriter then informs the Transfer Agent of the transaction in order to maintain individual shareholder records of the fund.

Broker


The Investment Advisor contracts the Broker to execute all buy and sell trades on behalf of the Mutual Fund. The Broker acts as the middleman in the buying and selling of securities by becoming the communication link between the buyer and the seller. For their services, the Broker/Dealer receives a fee or commission equal to a predetermined percentage of the net amount of the trade being executed.

The Broker works closely with the Custodian to ensure that the exchange of money and shares will happen on time and on the contractual date.

Disclaimer: Maximum care has been has been taken while writing the notes. Author is not responsible any discrepancies