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Fund Vehicles

A Fund Vehicle is nothing but a privately pooled investment vehicle which collects funds from investors for investing it in accordance with a defined investment policy for the benefit of its investors. According to the National Stock Exchange, a Collective Investment Vehicle (or a “CIV”) is any entity that allows investors to pool their money and invest the pooled funds, instead of buying securities directly as an individual, examples of which include Mutual Funds, Exchange Traded Funds, Collective Investment Schemes. This Blog Post is a brief overview of Fund Vehicles recognized by the Indian Regulators.

Mutual Fund

An Offer Document stands at the very basis of a Mutual Fund, this Document lays down the objectives that guide the functioning of the Mutual Fund. Mutual funds issue units to investors in accordance with the quantum of money invested by them, these investors are called unitholders and the security instrument involved is called unit. Profits and losses are shared by investors in proportion to their investments. Mutual Funds require compulsory registration with SEBI before collecting funds from the public.


A mutual fund is set up in the form of a trust and it has following components:

  • Sponsor who is like a promoter for the mutual fund, Sponsor brings in capital and is responsible for creating a MF trust as well as setting up the AMC. He has to make an application for registration of the MF.

  • Trustee includes either the Board of Trustees or the Trustee company who hold the property of the MF in trust for the unit holders’ benefit. A MF can be managed either by the Board of Trustees which is a body of individuals or by a Trust Company which is a corporate body. Trustees are appointed with the approval of SEBI. Trustees, do not directly manage the portfolio of a MF.

  • AMC directly manages the portfolio of a MF in accordance with the Trust Deed and SEBI Regulations. AMC is appointed by the sponsor or trustee after the approval of SEBI and acts as the investment manager of the Trust. It has to meet SEBI’s capital requirement, it functions under the supervision of its Board of Directors, Trustees of the Fund and SEBI. AMC floats and manages different schemes per SEBI Regulations and the Investment Management Agreement signed with the Trustees to the Fund.

  • Registrar and Transfer Agent maintains records of the unitholder’s account and forms the most vital interfact between unitholder and the MF as most communication between these two parties takes place through the RTA.

  • Distributors or Agents send the products across length and breadth of the country.

  • Custodian works for safekeeping the securities and assets and for participating in the clearing system through the approved depositor. He also records information on stock splits and other corporate actions.


A Mutual Fund has to be registered with the RTA as a Trust, then AMC launches all schemes of the mutual fund once approved by the Trustees and a copy of the Offer Letter is filed with SEBI. Funds, based on tenor can be open-ended (which offers units for sale without specifying any duration of redemption) and close-ended (which specify the period of maturity, every such scheme saving Equity Linked Savings Scheme requires listing on recognized stock exchange).

On basis of investment objective and asset class, there are Equity/ Growth Schemes (which provide capital appreciation over medium to long-term by investing major part of the corpus in equities), Debt/ Income Schemes (investing in fixed income securities such as bonds/ corporate debentures, G-Secs and money market instruments). Balanced Funds (providing growth and regular income in equities and fixed income securities in proportion specified in its offer documents. Money market/ liquid funds (investing exclusively in safer short-term instruments such as treasury bills, certificate of deposit, commercial paper, g-secs). Gilt (investing in a mix of g-secs of varying maturities).

Index Funds replicate portfolio of particular indices like S&P CNX Nifty by investing in all stocks comprising the index in proportion equal to the weightage given to those stocks in the Index. Thus the value of the fund is linked to the chosen index and its performance.

Fund of Funds or FoF is a scheme investing primarily in other schemes of the same mutual funds or other mutual funds, it enables investors to achieve greater diversification through one scheme

The Law

The SEBI (Mutual Funds) Regulations 1996 governs the norms for launch of schemes, disclosures, advertisements, listing, registering with SEBI, repurchase of close-ended schemes, offer period, transfer of units and investments among others. As MFs, AMC and Corporate Trustees are registered as Companies, they also have to comply with the Companies Law. Further close-ended schemes being listed on one or more stock exchanges would be subject to the regulations of the concerned stock exchange. Further, since the nature of Mutual Fund is that of a Trust, MFs are governed by the Indian Trust Act 1882.

Exchange Traded Funds (ETF)

ETF is an investment fund which is traded on a stock exchange, it is marketable security which is like index fund but tradable during the day. It tracks a stock index, commodity or bond or a basket of the asset.

Collective Investment Schemes (CIS)

Legally, a Collective Investment Scheme is any scheme or arrangement which satisfies the conditions referred to in Section 11AA(2) of the SEBI Act. It includes any scheme or arrangement made or offered by any company under which the contributions or payments made by the investors are pooled and utilized with a view to receiving profits, income, produce or property and is managed on behalf of the investors is a CIS. Investors do not have a day to day control over the management and operation of such a scheme or arrangement. However, the Regulations specifically exclude certain schemes and arrangements.

A Collective Investment Management Company needs to be incorporated under the provisions of the Companies Act 1956 and registered with SEBI (CIS) Regulations 1999 with an object to organize, operate and manage the CIS.

Primary law: SEBI (Collective Investment Schemes) Regulations 1999.

Alternative Investment Funds (AIF)

Any fund established in India in the form of a trust, a company, a limited liability partnership or a body corporate which is a privately pooled investment vehicle which collects funds from investors (indian or foreign) for investing as per a defined investment policy for the benefit of investors would be an AIF. The AIF Regulations specifically exclude family trusts, ESOPS, employee gratuity trusts, fund managed by securitization companies, holding companies, SPV not managed by fund managers and pool of funds directly regulated by any other regulator.

ReITs and InvITs

Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts are vehicles vehicles allowing developers to monetize revenue-generating real estate and infrastructure assets while enabling investors or unit holders to invest in these assets without actually owning them. Such monetization benefits developers by allowing them to release capital for funding new infrastructure or real estate projects and provides liquidity to investors or unit holders as units of the trust are typically listed.[1]



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