Mutual Funds 101 (3)

June. 10,2020
Mutual Funds 101 (3)

organizational structure


An originator is typically a financial services company, such as a mutual fund company, broker-dealer, bank or insurance company. The sponsor invests the initial capital of the fund and calls upon third parties necessary to operate the fund. In the United States, the sponsor must register the fund with the Securities and Exchange Commission. This registration document becomes the fund's prospectus, which describes the fund's sponsor, board of directors, investment objectives, permissible investments, and the fund's investment objectives. Types, fund rates, and risks. The cost to the promoter to register the fund and design the corporate documents can run into the hundreds of thousands of dollars. There are also costs associated with operating the fund. Required expenses include accounting fees, fundholder service fees, custodial fees, and transfer and regulatory fees.


The Fund is intended for investors who purchase its shares. Investors are informed of detailed information about the fund by means of prospectuses, annual reports and other periodic reports. By studying these documents, shareholders can determine whether the fund is meeting its objectives and following its investment strategy.

Shareholders of a mutual fund have the right to vote for the election of directors. Changes to the terms of the contract with the fund manager must also be approved by them. Changes to a fund's objectives and major policies usually require the approval of a majority of shareholders.

The Board of Directors

Shareholders elect a Board of Directors to oversee the work of the Fund's management and portfolio managers. The Board of Directors ensures that the Manager's investments are in line with the Fund's objectives and that any change in the Manager's contract or any change in the fees paid to it are This is to be determined by voting. The directors of the fund receive remuneration to be specified in the fund's prospectus.

Fund managers

Fund managers are sometimes referred to as investment advisors. They research and select specific securities based on the fund's investment objectives and invest the fund's assets. As professional money managers, fund managers have a higher level of knowledge and expertise than the average investor. This service allows even small investors to enjoy the same research and expertise as large institutions or wealthy individuals. The investment advisor is usually not an individual, but a subsidiary of the promoter or an independent investment management company. Investment advisory firms can be structured in a variety of ways. Some firms have a single fund manager managing a single fund, while others may have several fund managers managing funds in the same field or with the same expertise. A fund with the same objectives. When a team manages a fund, one or two of them are appointed as company leaders. They usually lead the work of subordinate managers, researchers and analysts.

Fund managers usually meet with many of the companies they are researching and use computational models to select securities for the portfolio. They also have access to advanced fund analysis tools and real-time financial information from a variety of sources. The investment advisory firm earns a management fee, and an individual fund manager's compensation may consist of a salary plus a bonus related to the fund's returns The. When investing in a fund, it is important to know about the history and experience of the manager of that fund. The fund's prospectus provides detailed information about how long the manager has been managing this fund, the manager's educational background, management of other funds and other information. This information can be used to evaluate the competence of the fund manager. Does he have experience in bull and bear markets? How does his performance compare to benchmark performance during market peaks and troughs? The safest bet is to choose experienced fund managers who have the ability to maintain a consistent track record in both high and low market periods.


Investors buy or redeem fund shares either directly themselves or through a third party. The third party is known as the underwriter or distributor. Distributors are critical to the success of the fund, due to their responsibility to attract investors to the fund. As competition in the industry increases, the role of distributors is becoming increasingly important. In order to bring a fund to market, distributors prepare sales materials, brochures and advisory materials, and need to design incentives. A wide variety of sales agents are encouraged to facilitate sales. Distributors may sell fund shares directly, or through brokers, financial planners, banks, insurance companies or mutual funds. Supermarkets, etc. to sell.