Study guide
4.2 Key Constituents of a Mutual Fund
NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam
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1 Chapter 1: Introduction & Exam Overview
1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan
2 Chapter 2: Investment Landscape
2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help
3 Chapter 3: Concept and Role of a Mutual Fund
3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India
4 Chapter 4: Legal Structure of Mutual Funds in India
4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI
5 Chapter 5: Legal and Regulatory Framework
5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries
6 Chapter 6: Scheme Related Information
6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures
7 Chapter 7: Fund Distribution and Channel Management Practices
7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor
8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units
8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio
9 Chapter 9: Taxation
9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST
10 Chapter 10: Investor Services
10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times
11 Chapter 11: Risk, Return and Performance of Funds
11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk
12 Chapter 12: Mutual Fund Scheme Performance
12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure
13 Chapter 13: Mutual Fund Scheme Selection
13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts
4.2 Key Constituents of a Mutual Fund
Key Takeaways Explain This Topic AI
The custodian holds the scheme's securities and must be independent of the sponsor.
The registrar and transfer agent maintains investor records and processes transactions.
The fund accountant computes NAV daily and is functionally separate from fund management.
Auditors are appointed separately for the scheme and for the AMC, and the scheme auditor is appointed by trustees.
Distributors and the collecting bankers complete the operating chain between investor and scheme.
Last updated: August 2026
The Principle Behind the Constituents
Every constituent below exists because of one rule: the party that decides what to buy must not be the party that holds it, the party that records it, or the party that values it. Separation of these functions is what makes fraud require collusion between independent entities rather than a decision by one.
The Custodian
The custodian holds the scheme's securities in safekeeping and settles all trades.
- Registered with SEBI as a custodian of securities
- Appointed by the trustees , not by the AMC
Must be independent of the sponsor ; a sponsor or its associate cannot act as custodian for that fund unless SEBI's conditions on independence are satisfied
Handles settlement, collects corporate actions such as dividends, interest, bonus and rights, and reconciles holdings
The custodian's independence is the reason a fund manager cannot simply move securities out of a scheme. The AMC instructs; the custodian holds and settles; the records must agree.
For dematerialised holdings, the depositories — NSDL and CDSL — hold securities electronically, with the custodian operating as a depository participant.
The Registrar and Transfer Agent
The RTA is the investor-facing operational engine of the fund. It:
- Processes purchase, redemption, switch and systematic transaction requests
- Maintains the register of unitholders and allots units
- Issues account statements and consolidated account statements
- Manages folio-level non-financial changes — address, bank mandate, nomination
- Handles payouts of redemption proceeds and income distributions
- Maintains KYC linkage and processes transmission on death of a unitholder
Most Indian AMCs outsource this to a small number of large RTAs — CAMS and KFin Technologies being the principal ones. An AMC may perform the function in house, but only if it has the systems and is equipped to do so.
Because the RTA maintains the unitholder register, the date and time stamped by the RTA or an official point of acceptance determines which day's NAV applies — a link that becomes decisive in the cut-off timing rules later in the syllabus.
The Fund Accountant
The fund accountant computes the scheme's NAV each business day: valuing every holding, accruing income and expenses, and dividing net assets by units outstanding.
The function must be kept separate from fund management , because a fund manager able to influence the valuation of holdings could disguise poor performance. The role may be performed by the AMC's own segregated fund accounting team or outsourced to the custodian or a specialist provider — but the segregation of duties is mandatory either way.
The Auditors
Mutual funds carry two distinct audits , and the exam tests the distinction:
- Audit Appointed by Scope
- Scheme auditor The trustees Accounts of each scheme
- AMC auditor The AMC in general meeting Accounts of the AMC as a company
The scheme auditor must be different from the AMC's auditor . Trustee appointment of the scheme auditor is what makes the audit independent of the entity being examined — the AMC cannot choose the auditor who reviews the schemes it runs.
Bankers
Scheduled commercial banks act as collecting bankers , receiving subscription money, and as payment bankers , remitting redemption proceeds and income distributions. The banking channel is also what determines when subscription funds are actually realised and available to the scheme, which drives NAV applicability on purchase transactions.
Distributors
Distributors — individuals, firms, banks and national distributors holding an ARN — source investors, complete documentation, and provide ongoing service. They are agents of the investor in practice and are remunerated by the AMC from scheme expenses. Chapter 7 covers this in full.
Putting the Chain Together
A single purchase transaction touches most of the constituents:
The distributor helps the investor complete the application and submits it.
The application is time stamped at an official point of acceptance and captured by the RTA .
Funds are received through the collecting banker and realised.
The RTA allots units at the applicable NAV and updates the register.
The AMC deploys the money; the custodian settles the trades and holds the securities.
The fund accountant revalues the portfolio and computes the next day's NAV.
The scheme auditor , appointed by the trustees , examines the accounts annually.
No single entity controls that chain end to end, and that is the design.
Who Appoints Whom
The appointment lines matter more than the job descriptions, because they determine who can be removed by the party being supervised.
- Role Appointed by Why it is arranged that way
- AMC Sponsor, approved by SEBI, on a trustee agreement The AMC manages under a mandate it cannot rewrite
- Trustees Sponsor, approved by SEBI Trustees hold the fund for unitholders
- Custodian Trustees Independence from the entity giving trade instructions
- Scheme auditor Trustees The audited party does not choose the auditor
- AMC auditor The AMC in general meeting Audits the company, not the schemes
- RTA AMC, under trustee oversight Operational function, supervised
- Fund accountant AMC or outsourced Must be segregated from fund management
The examinable pattern is simple: wherever independence is the point, the trustees appoint.
When the Arrangement Changes
Unitholders are protected at the moments when these relationships change.
A change in the fundamental attributes of a scheme — its structure, investment pattern, or terms of issue — requires prior approval from SEBI , written communication to every unitholder , and a public notice . Historically the notice had to appear in an English daily with nationwide circulation and in a newspaper of the language of the region where the fund's head office is situated; under the 2026 digital-first framework, email or SMS communication and website disclosure are permitted in place of newspaper advertisement in specified cases.
Unitholders must be given at least 30 days to exit, and those who redeem in that window do so at the NAV applicable to the day the request is received, without exit load .
The same protective logic applies when control of an AMC changes hands. The investor's remedy is never a vote to block the change; it is a guaranteed, cost-free exit before it takes effect. A distributor's job at that moment is to explain what has changed and let the investor decide, not to assume the answer.