"Paisa jaata kahan hai?" It's a fair question and almost nobody asks it out loud, which is a shame, because the answer is genuinely reassuring and it takes two minutes to explain. Once you know who holds what, most of the anxiety around handing money to an investment goes away, and you also become much harder to defraud.
The four parties
There are four, and they do different jobs on purpose.
You and your bank. The money starts here and comes back here. The bank account registered on your folio is where every redemption lands, and it should always be an account in your own name.
The fund house, or AMC. This is the company running the scheme. It decides what the scheme buys within its stated mandate, and it is the entity your money is invested with.
The custodian. The securities the scheme buys are held by a custodian, separately from the fund house's own affairs. The fund house manages; the custodian holds.
The registrar, or RTA. This is who maintains the record of who owns how many units. Your folio, your units, your transaction history. Statements come from here.
And then there's a fifth party who is deliberately outside all of that.
Where a distributor sits
Alongside, not inside. That's the whole point of the structure and it's worth being blunt about since it describes us.
A distributor can help you fill things in and submit instructions where you've authorised it. A distributor cannot receive your investment money, cannot hold your units, and cannot direct a redemption anywhere other than the bank account registered on your folio.
So the worst a poor distributor can do is give you unhelpful guidance. That's a real cost and it's a completely different category of problem from losing your money. If anybody ever asks you to transfer investment money to their own account, the structure has been broken deliberately, and there is no legitimate version of that request. Our guide on checking registration covers what else to verify.
What actually happens on a SIP date
Walk through one month, because seeing the sequence makes the rest obvious.
The mandate you signed authorises your bank to debit a fixed amount. On the date, the money leaves your account and reaches the fund house. Units are allotted at the NAV applicable for that day, based on when the request was received against the scheme's cut-off.
The registrar records those units against your PAN and sends you an allotment confirmation. Your distributor is not part of that transfer at any point; they may see that it happened, because the folio is tagged to them, and that is the extent of it.
If the debit fails, nothing else happens that month. No units, and possibly a bank charge. The failure is recorded against the mandate, which matters more than people expect, as our page on what happens when a debit bounces explains.
And on the way out
The same chain in reverse, with one addition worth knowing.
You submit a redemption. Units are sold at the NAV for the applicable day. The money is credited to the bank account registered on your folio, typically within a few working days for most equity schemes.
The addition is that it goes to that account and nowhere else. Not to a different account you mention in the request, not to a distributor, not to an app's wallet. This is the single strongest protection in the whole arrangement, and it's also why an old salary account sitting on a folio causes so much trouble, as our guide on updating folio details sets out.
Two documents that prove it, not just describe it
You don't have to take any of this on trust, which is the point of the arrangement.
The allotment confirmation comes from the fund house or registrar after each purchase, to the email registered on your folio. It shows the amount, the NAV applied and the units allotted. Nobody in between produces it.
The consolidated account statement comes from a registrar against your PAN and lists everything you hold across fund houses. If it arrives at your own email, the record exists independently of whoever helped you invest, which is exactly what you want. Our guide on finding old mutual fund investments explains how to request one.
If either of those arrives via somebody rather than to you, that's the thing to fix first.
What about an app or a platform?
Worth asking, because the answer varies and the app rarely volunteers it.
Some platforms are distributors, sitting outside the chain exactly as described above. Some route your money through a pooled arrangement of their own before it reaches the fund house. Those are different structures and it is entirely reasonable to ask which one you're using before committing anything.
The question to put is simple: does my money go directly to the fund house, and are my units held in a folio against my PAN? Both answers should be yes, and if the reply is vague, that vagueness is the information.
Why the jobs are split up like this
It looks like bureaucracy and it isn't. Each separation exists because somebody, somewhere, once did the thing it prevents.
The custodian holds the securities separately from the fund house so that the assets aren't mixed with the company's own. The registrar keeps the ownership record separately again, so the entity managing the money isn't the only one who knows who owns it. And the distributor is kept outside the money entirely, so that the person selling to you can't also be the person holding your cash.
None of that stops an investment falling in value. All of it stops a category of failure that has nothing to do with markets, and it's the reason "is my money safe with them" has a genuinely different answer here than it does for an unregulated scheme somebody describes to you over a phone call.
What this does not protect you from
Being honest about the limits, because the structure is strong in one direction and irrelevant in another.
It protects you from somebody running off with your money. It does not protect you from the value of your investment falling, which is an ordinary feature of a market-linked holding and has nothing to do with who holds what.
It also doesn't protect you from an unsuitable scheme, from too short a horizon, or from your own decision to stop during a fall. Those are the real risks in practice, and no amount of structural safety touches them. Our page on how to choose a mutual fund deals with that side.
The practical takeaway
- Money goes to the fund house, not to a person. Anything else is a warning.
- Redemptions come back only to your registered bank account. Keep it current.
- Statements come from the registrar. They should arrive at your own email, not be forwarded to you by somebody.
- Nobody in between holds your units. Not us, not an app.
If any of those four is not true of your current arrangement, that is worth fixing before anything else. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working since 2014, and going through this with you costs nothing. Get in touch, or start with what a mutual fund actually is.
