Updated on March 7, 2023
A Custodian is a financial institution which holds a Mutual Fund’s securities for safe keeping. The securities are kept in an electronic form mostly. As the investments and assets to be held are huge, their safeguarding is of prime importance. The structure of a Mutual Fund separates the Asset Management Company from Custodian, which is a separate entity engaged only in the storage and protection of investor assets. A Custodian can be a bank, large financial institution or third party engaged in Custodial services. It does not engage in asset management decisions. There is a clear role division between fund management, safekeeping and record maintenance.
What is the role of a Custodian?
The Custodian performs certain important functions like:
a) Safekeeping and security of Mutual Fund assets and securities.
b) Documentation/record upkeep of share buying/selling or other securities of Mutual Fund.
c) Maintaining details about unit holders of Mutual Funds.
d) Complying with SEBI’s guidelines and other legal obligations.
e) Managing redemption and executing transactions for Mutual Funds.