mutual fund trust and corporations

Most mutual funds are set up in a trust structure, but for those of you who invest in mutual funds AND have non-registered investment accounts, you may want to look into Mutual Fund Corporations because they offer some interesting tax advantages. First off, this may seem like a technical, highbrow concept but it is not that complicated in actuality. Im going to give you the rundown first and then explain the how and why. A mutual fund trust and a mutual fund corporation behave and act in almost an identical fashion each is just an investment portfolio managed on the behalf of many investors who pool their money together and give it to a mutual fund company. In fact more and more mutual fundcompanies are offering the same mutual fund as both a trust and as a corporation. The difference comes in the added tax advantages afforded by the mutual fund when setup as a mutual fund corporation. In essence, it allows for you to switch between funds of the same mutual fund company (as long as all the fund you are switching OUT of and the fund you are switching INTO are both offered as mutual fund corporations) without triggering any capital gains. As you may know, if you have a gain on an investment and it is held in a taxable account, when you sell it you are triggering tax in the form of capital gains. Normally, when you switch between mutual funds the fund that you are redeeming units from is subject to capital gains. The mutual fund corporation avoids this tax event. Before I get into the how, let me first reiterate that the deferral of tax ultimately increases your investment returns over time and the longer you can defer the payment of taxes, the faster your investments grow. Okay, so lets explain how this is circumvented: The mutual fund company will actually set up a corporation and instead of issuing UNITS like with a mutual fund trust, they issue shares in the corporation. Each mutual fund that a mutual fund company operates within the mutual fund corporation has its own class of shares. You can consider mutual fund corporation shares and mutual fund trust units to look and act the same way (especially on your client statement) but the structural difference is important for tax purposes. When you switch between funds (again, as long as the fund you are switching out of and into are both offered as mutual fund corporations) you are actually exchanging one class of shares in the corporation for another. With the traditional mutual fund trust each fund is set up as its own taxable entity. With a mutual fund corporation with different classes of shares (each representing a distinct mutual fund) the OVERALL corporation is its own taxable entity. So as long as you are switching between "shares" (funds) within the SAME mutual fund corporation, you will not trigger any capital gains! You should note that shares in mutual fund corporations carry additional expenses to set up and maintain these structures in the neighbourhood of around 30 basis points in other words their MERs are higher by about 0.3% (give or take). One way to easily spot whether a mutual fund is set up as a mutual fund trust versus a mutual fund corporation is in the name. A mutual fund corporations funds will have the word CLASS at the end

of the name. For example the Mackenzie Maxxum Dividend Fund is also available as the Mackenzie Maxxum Dividend Class

Amc
it is the investment manager for the mutual fund. It is a company set up primarily for managing the investment of mutual funds and makes investment decisions in accordance with the scheme objectives, deed of Trust and other provisions of the Investment Management Agreement

This is the role of the A s s e t M a n a g e m e n t C o m p a n y (the Third tier).Trustees appoint the Asset Management Company (AMC), to manageinvestors money. The AMC in return charges a fee for the services providedand this fee is borne by the investors as it is deducted from the moneycollected from them. The AMCs Board of Directors must have at least 50% of Directors who are independent directors. The AMC has to be approved bySEBI. The AMC functions under the supervision of its Board of Directors, andalso under the direction of the Trustees and SEBI. It is the AMC, which in thename of the Trust, floats new schemes and manage these schemes by buyingand selling securities. In order to do this the AMC needs to follow all rules andregulations prescribed by SEBI and as per the Investment ManagementAgreement it signs with the Trustees. If any fund manager, analyst intends to buy/ sell some securities, thepermission of the Compliance Officer is a must. A compliance Officer is one of the most important persons in the AMC. Whenever the fund intends to launcha new scheme, the AMC has to submit a Draft Offer Document to SEBI. Thisdraft offer document, after getting SEBI approval becomes the offerdocument of the scheme. The Offer Document (OD) is a legal document andinvestors rely upon the information provided in the OD for investing in themutual fund scheme. The Compliance Officer has to sign the Due DiligenceCertificate in the OD. This certificate says that all the information providedinside the OD is true and correct. This ensures that there is accountability andsomebody is responsible for the OD. In case there is no compliance officer,then senior executives like CEO, Chairman of the AMC has to sign the duediligence certificate. The certificate ensures that the AMC takes responsibilityof the OD and its contents.

sebi To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities are governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. The general power of superintendence and direction over AMC is vested with the trustees. According to SEBI Regulations, two thirds of the directors of trustee company or board of trustees must be independent . They

should not be associated with the sponsors. 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. Increase of load more than the level mentioned in the offer document is applicable only to prospective investments by the MFs. For original investments, the offer documents has to be amended to make investors aware of loads at the time of investments.

An applicant proposing to sponsor a mutual fund in India must apply in Form A with a fee of Rs.25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see the SEBI (Mutual Funds) Regulations, 1996. .

Custodian
A custodians role is safe keeping of physical securities and also keeping a tabon the corporate actions like rights, bonus and dividends declared by thecompanies in which the fund has invested. The Custodian is appointed by theBoard of Trustees. The custodian also participates in a clearing andsettlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities. In India today, securities(and units of mutual funds) are no longer held in physical form but mostly indematerialized form with the Depositories. The holdings are held in theDepository through Depository Participants (DPs). Only the physical securitiesare held by the Custodian. The deliveries and receipt of units of a mutual fundare done by the custodian or a depository participant at the instruction of theAMC and under the overall direction and responsibility of the Trustees.Regulations provide that the Sponsor and the Custodian must be separateentities. THE ROLE OFA REGISTRAR ANDTRANSFER AGENTS? Registrars and Transfer Agents (RTAs) perform the important role of maintaining investor records. All the New Fund Offer (NFO) forms,redemption forms (i.e. when an investor wants to exit from a scheme, itrequests for redemption) go to the RTAs office where the information isconverted from physical to electronic form. How many units will the investorget, at what price, what is the applicable NAV, what is the entry load, howmuch money will he get in case of redemption, exit loads, folio number, etc.is all taken care of by the RTA

Advertiser

Mutual funds are financial assets investors should seek out mutual funds with the highest expected returns (adjusted for risk and measured after expenses) Therefore, publications goal should be to recommend funds with the highest expected returns For example, because low expenses are a good predictor of

higher-than-average future returns, publications should tend to recommend funds with low expenses (Carhart 1997) Controlling for fund characteristics related to expected returns, we find advertisers funds are more likely to receive + mentions and less likely to receive mentions

advisor
Choosing investment strategies to make your money grow is very complex as it requires complete knowledge of market and various investment option, regular monitoring taking into account the investor's risk appetite and his goals. This is where THEYcomes into picture offering its portfolio of financial services. THEYprofessionals play an analyst's cum advisory role in a manner that your portfolio would appear as self managed & by doing so role of Portfolio Managers in the Banking institutions would be as good as redundant . THEYoffers you services whereby you yourself control your investment portfolio & THEYacts as catalyst for timely intervention so that your portfolio synchronizes favorably with money market. Prior to incorporation of PTIC, business of the company commenced under the banner of Rajeev Associates - a proprietorship concern in the year 1995. It saw steady business growth since it was established. THEYtoday holds a reputation of providing " One Stop Solution under One Roof " with business segments linked & related to investment, taxation

Manager
Definition of 'Fund Manager'
The person(s) resposible for implementing a fund's investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the fund's average assets under management.

Also known as an "investment manager".

Investopedia explains 'Fund Manager'

The individuals involved in fund management (mutual, pension, trust funds or hedge funds) must have a high level of educational and professional credentials and appropriate investment managerial experience to qualify for this position. Investors should look for long-term, consistent fund performance with a fund manager whose tenure with the fund matches its performance time period. The whole point of investing in a fund is to leave the investment management function to the professionals. Therefore, the quality of the fund manager is one of the key factors to consider when analyzing the investment quality of any particular fund.

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