How Collective Investment Scheme Is Governed
It is important that investors have basic knowledge of how a collective investment scheme is governed and who is responsible for the different aspect of its operations.
At the apex is the Securities and Exchange Commission, which regulates the activities of mutual funds, through the provisions of the Investment and Securities Act (2007). The Act set out the general guidelines for establishment and operations of mutual funds in Nigeria.
Next are the Trustees to the mutual fund. The Trustees are the equivalent of the board of directors of a company. Their responsibility is to represent contributors to the mutual funds. Hence, they take decisions on behalf of contributors, with the objective of safeguarding the assets of the mutual funds. They are also to ensure that the mutual fund is operated and managed in compliance to the laws, regulations, and rules.
Among other things, the Trustees decide on dividend payment, organise and conduct annual general meetings of contributors to the fund.
The Fund manager (usually a company) is the one contracted or hired by the Trustees to make and manage the day-to-day investment activities of the Fund. The Fund manager must be licensed by SEC to operate as a portfolio or fund manager.
According to the ISA 2007, â€œA manager shall administer a collective investment scheme: honestly and fairly; with skill, care and diligence; and in the interest of investors and the securities industry.
The Fund manager is also required to: maintain adequate financial resources to meet its commitments and to manage the risks to which its collective investment scheme is exposed; organise and control the scheme in a responsible manner; keep proper records; employ adequately trained staff and ensure that they are properly supervised; have well defined compliance procedures; and promote investor education.
There is also the Custodian of the Fund, and its principal duty is to keep the assets of the Fund, and maintain proper record of all transactions on the assets. In addition to these, is the Registrar of the Fund and his job is to maintain register or records of unit holders or shareholders as the case may be.
The management of the day to day investment activities of the mutual fund is governed by a document called the Trust Deed. A Trust Deed is the agreement between the Fund manager and the Trustee. It governs the management of a mutual fund by laying down rights, responsibilities, investment objectives, policies, outlets and all other relevant information of the Fund.
According to the ISA 2007, â€œA scheme fund shall be invested by a manager in accordance with the provisions of the trust deed or custodial agreement with the objectives of safety and maintenance of fair returns on amounts invested.
â€œNo manager, trustee or custodian under a scheme shall make any alteration in the Trust Deed or custodial agreement in which are expressed the trusts of an authorised scheme or to make any change in the name of an authorised scheme without prior approval of the Commissionâ€.
The above imply that before investing in any mutual fund, the investor should inquire about the trustee, the Fund manager, and be sure they are licensed by SEC. Most importantly, investors should also acquaint themselves with the Trust Deed, because the document determines where their money will be invested, how it would be invested, and the profitability of their investment.- Culled from The Vanguard