Which of the following functions falls directly within the statutory operational responsibilities of a SEBI-registered Custodian appointed by the Trustees of a mutual fund?

[ A ]Maintaining safe custody of portfolio securities, settling market transactions, and tracking corporate actions like dividends and bonus issues[ CORRECT ]

[ B ]Formulating the daily investment strategy and stock selection for equity schemes

[ C ]Marketing mutual fund schemes to retail investors and calculating distributor trail commissions

[ D ]Conducting statutory audits of the AMC's corporate annual financial balance sheets

Takeaway

Option A is correct: Maintaining safe custody of portfolio securities, settling market transactions, and tracking corporate actions like dividends and bonus issues

Derivation

The Custodian, appointed by the Trustees and registered with SEBI under Custodian Regulations, holds custody of all scheme assets (securities, gold, silver, etc.), settles purchases and sales initiated by the AMC, and tracks corporate actions such as dividend receipts, rights issues, and bonus shares. The custodian operates independently of the AMC to ensure assets are safely preserved. This question tests constituent responsibilities. A common mistake is confusing custodial duties with portfolio management (AMC) or auditing.

Why the others fail

B — Formulating the daily investment strategy and stock selection for equity schemes

Investment strategy and stock selection are exclusively performed by the fund managers and analysts within the AMC.

C — Marketing mutual fund schemes to retail investors and calculating distributor trail commissions

Marketing schemes and computing distributor commissions are handled by the AMC sales and finance departments.

D — Conducting statutory audits of the AMC's corporate annual financial balance sheets

Statutory auditing of AMC corporate balance sheets is conducted by an independent chartered accountant firm appointed by the AMC.