The organizational structure of a mutual fund outlines the rights and responsibilities of each of the key components of the fund’s operations. The fund’s operations include buying, selling, underwriting and managing the fund’s assets. The key components of a mutual fund’s organizational structure are the sponsors, shareholders, board of directors, investment advisers, transfer agents, custodians and independent accountants.
Mutual Fund Creation
A sponsor, usually an investment or finance company, creates a mutual fund and organizes it as either as a business trust or corporation and registers it with the Securities and Exchange Commission (SEC). The company appoints a board of directors associated with the investment company and hires independent directors who are not associated with the company. The sponsor is the company typically puts up the start-up or seed capital to launch the fund. Once the company has at least $100,000 of seed capital, it can begin selling fund shares to the public.
Overall Organizational Structure
The organizational structure of a mutual fund is its chain of command. At the top of this chain are its shareholders -- the people who buy shares in the mutual fund, the mutual fund itself and the board of directors. This means that those who work for and with the fund, such as the investment advisers, transfer agents, underwriters and custodians of the fund, are responsible for working in the best interests of the mutual fund, its shareholders and board of directors.
Shareholders and Directors
Shareholders are at the top of the organizational structure. Without them, the fund would not be able to operate. Shareholders also have the right to elect a board of directors and approve or veto any material changes in the fund manager’s contract terms. The board of directors is also at the top of the organizational structure because it oversees the operations of the mutual fund and ensures that the mutual fund advisers are working in the best interests of the shareholders and of the fund itself.
Reporting to Shareholders and Directors
Those who service the mutual fund share in its organizational structure. Fund servicers include investment advisers who manage the fund’s portfolio; underwriters sell fund shares to the public; transfer agents who carry out and keep records of shareholder’s transactions; and administrators who perform the clerical duties for those that service the fund. It also includes the people who maintain internal controls over fund servicers to ensure they are complying with federal and state securities regulations. All the servicers of the fund work together in the best interests of the mutual fund itself, shareholders and the board of directors.
- Investment Company Institute; 2011 Investment Company Fact Book; Appendix A; The Organization of a Mutual Fund
- Public Company Accounting Oversight Board; Independent Standards Board; Standard Number Two; Attributes of the Mutual Fund Organizational Structure; December 1999
- U.S. Securities and Exchange Commission. "Mutual Funds and ETFs," Page 30. Accessed Aug. 21, 2020.
- SIPC. "What SIPC Protects." Accessed Aug. 21, 2020.
- Kiplinger. "How Mutual Fund Assets Are Protected." Accessed Aug. 21, 2020.
Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.