A custodian’s role is safe keeping of physical securities and also keeping a tab
on the corporate actions like rights, bonus and dividends declared by the
companies in which the fund has invested. The Custodian is appointed by the
Board of Trustees. The custodian also participates in a clearing and
settlement system through approved depository companies on behalf of
mutual funds, in case of dematerialized securities. In India today, securities
(and units of mutual funds) are no longer held in physical form but mostly in
dematerialized form with the Depositories. The holdings are held in the
Depository through Depository Participants (DPs). Only the physical securities
are held by the Custodian. The deliveries and receipt of units of a mutual fund
are done by the custodian or a depository participant at the instruction of the
AMC and under the overall direction and responsibility of the Trustees.
Regulations provide that the Sponsor and the Custodian must be separate
entities.