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Mutual funds are in the business of buying and selling securities in large volumes. Handling these securities in terms of physical delivery and eventual safekeeping is therefore a specialized activity. The board of trustees of a fund appoints the “Custodian” for:
- safekeeping of physical securities or
- for participating in any clearing system, through approved depository companies, in case of dematerialized securities.
A custodian must fulfill its responsibilities in accordance with its agreement with the mutual fund. The custodian should be an entity independent of the sponsors and is required to be registered with SEBI.
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