Custodian appointment: mutual funds must appoint registered custodians and restrict sponsor-controlled custodians unless safeguards apply.

Regulation 26 mandates that mutual funds appoint a custodian registered with the Board and notify the Board of the appointment. It permits special custody arrangements for schemes holding physical precious metals, real estate title deeds, or commodity derivatives' underlying goods. Custodians in which the sponsor or its associates hold majority voting control or board representation are prohibited from acting for the sponsor's mutual funds, except where strict safeguards are satisfied: strong sponsor financial standing, a majority of independent directors at the custodian, no subsidiary relationship with the asset management company, no shared directors, and a written undertaking of independent conduct.

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