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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Concept and Role of a Mutual Fund

In a mutual fund, the money collected from investors is used to buy a portfolio of securities. Which of the following best describes the ownership of this portfolio?

The securities belong to the unitholders collectively, in proportion to the units each holds, with the trustees holding them on their behalf. The AMC merely manages the portfolio and the custodian only safekeeps it, so neither is the owner of the scheme assets.

  1. AThe asset management company owns the securities and pays returns to investors
  2. BThe securities are owned by the investors collectively in proportion to the units they hold, and are held by the trusteesCorrect
  3. CThe sponsor owns the securities until the scheme matures
  4. DThe custodian owns the securities as the beneficial owner

Explanation

A mutual fund is a pass-through vehicle. The scheme's assets belong to the unitholders in proportion to their units, and the trustees hold them on behalf of unitholders. The AMC only manages the portfolio, and the custodian only safekeeps the securities, so neither owns them.

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