Mutual Fund Custodian
A mutual fund custodian is an individual or financial institution that keeps records of mutual fund assets and transactions and provides services related to the safety of fund investment. The custodian is responsible for verifying the assets of a fund, collecting interest and dividends, and providing administrative services such as preparing legal documents, filing reports with government agencies, and generating statements for mutual fund shareholders.
The role of a custodian is essential for mutual fund investments, as a custodian ensures that the fund operates according to its investment objectives, efficiently monitors and reports the activity of the fund, and most importantly protects the investors’ assets. As such, a mutual fund custodian typically has to be a financial institution or a licensed trust company. When a fund hires a custodian, the fund signs a custodial agreement with the institution which governs the terms for accepting, safetykeeping and safeguarding of fund assets.
Custodial services typically include activities such as keeping records of fund assets, collecting interest dividend and other income, reconciling account activities, verifying and processing payments, preparing reports, filing with regulatory bodies such as the SEC and providing shareholders with financial statements. They also manage the funds’ contact with banks and custodians of other investments. In short, these are the custodian functions that any reputable fund promotes during its operations.
To protect investors, mutual fund custodians are regulated on a federal and state level. The SEC has adopted rules that govern the activities of mutual fund custodians. These rules provide that custodians must be licensed and registered by their states, and must be subject to regular inspections by their state regulatory authority.
In addition, the SEC has adopted rules that provide mutual fund investors with protection against fraud and other abuses by a custodian’s staff. These rules include provisions that call for a custodian to separate in writing the functions of investment advisory, management, and custody.
Overall, the role of a custodian is important when it comes to maintaining transparency of a fund’s operations, protection of assets, proper functioning of a fund and its compliance with regulatory requirements. As such, mutual fund investors should ensure that their custodian adheres to all regulatory requirements and use its services to ensure the safety of their investments.
