Role of Custodian, RTA & Auditor

The custodian

The custodian is a SEBI-registered entity that holds the schemes' securities in safekeeping and settles their trades. When a fund manager buys shares or bonds, they are not held by the AMC; they are held by the custodian on behalf of the scheme.

Because the custodian is a check on the AMC, its links with the sponsor are restricted. A custodian in which 50% or more of the directors represent the sponsor cannot be appointed for that sponsor's fund. A custodian owned by the sponsor, meaning the sponsor or its associates hold 50% or more of the voting rights, may act only if the conditions in the Regulations are met; these include a sponsor net worth of at least ₹20,000 crore and safeguards for the custodian's independence. Older material states a flat ban, which is no longer the rule.

The registrar and transfer agent

The registrar and transfer agent (RTA) deals with investors' records, on behalf of the AMC. It processes purchases, redemptions, switches and SIP registrations, keeps the record of who holds how many units, and issues account statements.

The RTA does not hold securities and takes no investment decisions. Its register answers one question: which investor owns how many units of which scheme.

The auditor

The mutual fund has its own auditor, appointed by the trustees, who audits the accounts of the schemes. Under the SEBI (Mutual Funds) Regulations, 2026 this auditor must be independent of the auditor of the AMC. The AMC's own books, as a company, are audited separately by its own auditor.

The point of the rule is that the firm checking the investors' money is not the firm that checks the manager's own accounts.

Why the records are kept apart

Two of the figures behind a scheme's NAV are what the scheme holds and how many units exist. The custodian's records of securities are an independent record of the first; the RTA's register of units is the record of the second. With the auditor examining the scheme accounts, these independent records help cross-check unit holdings and security holdings.

These arrangements keep records and assets under independent checks. They do not protect against market losses: if the prices of the securities fall, the value of units falls, however carefully the securities are kept.

Rules at a glance

Key points

• The custodian, a SEBI-registered entity, holds the schemes' securities in safekeeping; the AMC does not hold them.
• A custodian in which 50% or more of the directors represent the sponsor cannot be appointed for that sponsor's fund.
• A sponsor-owned custodian may act only if the Regulations' conditions, including a sponsor net worth of at least ₹20,000 crore and independence safeguards, are met.
• The RTA processes investor transactions, keeps the record of unit holdings and issues account statements.
• The mutual fund's auditor is appointed by the trustees, audits the schemes' accounts and must be independent of the AMC's auditor.
• Independent records help cross-check holdings; they do not protect against market losses.

Common misunderstandings

• The custodian is not a guarantor of value: it keeps securities separate from the AMC, not safe from a fall in price.
• The RTA is not the custodian: the RTA keeps the record of units, while the custodian holds the securities.
• A sponsor-linked custodian is not banned outright: it may act if the Regulations' conditions are met, though older material states a flat ban.
• The fund's auditor is not the AMC's auditor: it must be independent of the AMC's auditor, and the AMC's own books are audited separately.

Questions people ask