Duties and Roles of Custodian Banks in the Mutual Fund Industry

In a mutual fund collective investment contract, the two main parties that make up the mutual fund are inseparable, namely the investment manager and the custodian bank.

Every investment manager who manages mutual funds will definitely need the role of a custodian bank. In addition, the custodian bank is also an important part of mutual fund management, so it is included in the mutual fund prospectus.

So what is meant by a custodial bank?

Custodian bank is described as a commercial bank that provides custody services for securities and other assets related to securities and other services, including receiving dividends, interest, and other rights, completing securities transactions, and representing account holders who are customers.

In simpler terms, a custodian bank is a bank that has obtained permission from Government Financial Service Authority to supervise and maintain mutual fund assets from investment managers.

The custodian bank must obtain a letter of approval from the Government Financial Services Authority. The Custodian Bank may only issue securities or funds recorded in a securities account upon a written order from the account holder or a party authorized to act on his behalf.

In the mutual fund industry in the form of a collective investment contract, the custodian bank enters into a contract with the investment manager, as the party authorized to carry out collective custody.

Duties and Roles of Custodian Bank

Duties and Roles of Custodian Banks in the Mutual Fund Industry

So broadly speaking, the custodian bank has two main functions, namely the first is the administrative function, which includes:

• Keep the entire portfolio belonging to mutual fund customers as well as other customer asset interest documents.
• Recording the sale and purchase of securities, bonds, money market, deposit placements, and so on related to the investment manager’s mutual fund assets.
• Calculate the NAV of the Investment Manager’s mutual funds every day.
• Perform administrative functions to send confirmation letters of mutual fund purchases to investment manager customers who have made transactions such as buying and selling or switching.

And the second function is to supervise investment managers, namely custodian banks have the authority to give warnings to investment managers, who take arbitrary policies to the detriment of investors or the public.

As well as giving warnings if there are errors or omissions in asset management. If the investment manager ignores the warning given by the custodian bank, the custodian bank has the right to report it to the Government Financial Service Authority for further follow-up.

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.

In addition, mutual funds are also interpreted 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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