Understanding The Role And Duties Of Custodian Bank In Mutual Fund Investment

The safety factor in investing is something that investors must consider. This is very reasonable to do to minimize the risk of being trapped by fraud or embezzlement of funds related to investments that still often occur.

Likewise in mutual fund investments, we must know how our funds are stored so that they are not misused by irresponsible parties. Therefore, to maintain the security of mutual fund investments, the services of a custodian bank are used.

In investing in mutual funds, investors do not have to worry about their funds being misused by investment managers or mutual fund selling agents, because all customer funds and mutual fund assets are stored safely in the Custodian Bank.

Mutual funds are products resulting from a collective investment contract signed by MI and the custodian bank.

What is a Custodian Bank?

For information, mutual funds are products resulting from a collective investment contract signed between an investment manager (IM) and a custodian bank (CB).

In collective investment contract, investment managers and custodian banks agree to collect and manage funds from the public in the form of mutual funds with clear division of rights and obligations on each party.

Custodian bank is a financial institution that is responsible for collectively storing and maintaining various assets of investment companies. Assets in question can include all types of securities, including stocks or bonds or other valuables.

Meanwhile, the investment manager only has the right to manage funds in the form of cash and investment instruments.

However, for security reasons, all of these assets must be kept in a custodial bank, thus closing the possibility of one party embezzling customer funds.

As for becoming a custodian bank, an institution must obtain permission from Government Bank in your country and approval from the Government Financial Services Authority.

In relation to mutual fund investment, the Custodian Bank has several duties, including:

• Calculating the net asset value (NAV) of mutual funds
• Recording mutual fund asset transactions
• Sending transaction confirmation letters as proof of customer transactions
• Sending monthly investment reports to the media

For the services it provides, the custodian bank charges an average fee of 0.1 to 0.25 percent per year from the funds deposited. In addition, the Custodian Bank is also tasked with supervising investment managers so as not to deviate from the collective investment contract.

In the event of management that violates the applicable provisions, the custodian bank has the responsibility to warn the investment manager concerned. If the warning is not heeded, then the custodian bank is tasked with bringing the case to the Financial Services Authority.

Therefore, for security reasons and to avoid conflicts of interest, the Custodian Bank absolutely must not have a special relationship or even be affiliated with the Investment Manager, except for government ownership.

With this separation of functions, mutual funds are safe from the risk of bankruptcy of the Investment Manager or Custodian Bank, because mutual fund assets are not assets of the two parties so they cannot be confiscated if they both go bankrupt.

Please note, mutual funds are a place to raise funds from the investor community. The collected funds will later be invested by the investment manager into several investment instruments such as stocks, bonds, or time deposits.

Mutual funds are also defined as an alternative investment for the investor community, especially small investors and investors who do not have much time and expertise to calculate the risk of their investment.


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