Mutual Fund Custodian
What Is a Mutual Fund Custodian?
A mutual fund custodian is a trust company, bank, or comparable financial institution that is responsible for holding and shielding the securities owned inside a mutual fund.
A mutual fund's custodian holds assets for safekeeping and can likewise give a scope of services including fund administration, fund accounting, legal, compliance, tax support, and transfer agency services.
Grasping Mutual Fund Custodians
Mutual fund custodians work with mutual funds through third-party arrangements. Since a mutual fund is basically a large pool of funds from various investors, it requires an extra entity to hold and defend the securities that are mutually owned by every one of the fund's investors.
The Securities and Exchange Commission (SEC) has specific rules and requirements overseeing the custody of mutual funds which leads most investment companies to work with a third-party custodian for compliance. Regulations for custody of mutual fund assets were amended in 2009 to guarantee even greater transparency and safety of investments for investors. These regulations are principally illustrated in rule 206(4)- 2 of the Investment Advisors Act of 1940. The 1940 Act regulations are in place to assist with relieving the risks of fraudulent or untrustworthy activity by investment companies and fund managers.
Mutual Fund Custodian Services
Mutual fund custodians work with mutual fund companies around the world. Global custodians must comply with shifting regulations in individual countries.
Mutual fund custodians can offer a broad scope of services. Common offerings incorporate fund accounting, administration, legal, compliance, and tax services. Mutual fund custodians additionally work with transfer agents or give their own transfer agency services to keep up with records of shareholder transactions and balances. Mutual funds regularly re-appropriate the greater part of their administrative center operations to custodians for cost proficiency and convenience. Mutual fund administration and accounting are important parts of a mutual fund's operations.
Fund accountants are responsible for ascertaining daily fund net asset values. Fund administrators are likewise responsible for various activities associated with the underlying securities of the mutual fund including corporate actions and proxy voting.
Instances of Mutual Fund Custodians
Numerous global financial firms offer custody services for a wide range of investments including stocks, bonds, mutual funds and exchange-traded funds.
For instance, in 2016, Bank of New York Mellon was the largest global custodian with total assets under custody of $25.08 trillion for the 12 months through June 2016. State Street positioned second with $21.35 trillion in assets under custody; and J.P. Morgan positioned third with $20.47 trillion in assets under custody.
Features
- While a fund's portfolio manager settles on trading choices, the securities owned by the fund are held with the custodian and not straightforwardly with the fund itself. This is finished to reduce the risk of fraud.
- Mutual fund custodians are responsible for securing and dealing with the securities held inside a mutual fund.
- As well as holding securities and record-keeping, a custodian likewise commonly offers trade settlements, foreign exchange transactions, and tax services for its clients.
