Portfolio Custody System and Protection of Investor Assets

We believe that an informed investor looks not only at a fund's name or past performance, but also at its investment strategy, risk management, and the security mechanisms behind it. Because the foundation of sustainable investing is not only making the right investment, but investing within the right structure.

How Is Your Money Protected in Investment Funds?

A Multi-Layered Protection System Different from Banking

When investing in an investment fund, investors generally have the same question in mind:

"Which institution is currently responsible for my money?"

And quite often, a second question immediately follows:

"What happens if something happens to the portfolio management company or the custodian bank?"

These questions are entirely natural. After all, we have all been familiar with the banking system for years; when we deposit our money in a bank, we generally know how the process works. Investment funds, however, operate differently, and this structure is not sufficiently understood by many investors.

In fact, the system used in investment funds is a multi-layered structure designed to protect investor assets, in which responsibilities are separated, supported by independent control mechanisms, and secured under capital markets legislation.

Depositing Money in a Bank and Investing in a Fund Are Not the Same Thing

When you deposit money in a bank, the amount you deposit enters the bank's balance sheet. The bank may use this source to extend loans, provide financing, or deploy it within the scope of its banking activities. You, in turn, hold a claim against the bank.

In investment funds, however, the process works completely differently.

At no stage does the money you invest become the property of the Portfolio Management Company (PMC) or the Custodian Bank. You transfer your money to the investment fund in exchange for fund participation units, and the fund assets are held in accounts completely separate from the institutions' own assets. The fund participation units registered in your name are monitored in book-entry form at the Central Securities Depository of Türkiye (MKK); the Custodian Bank also maintains a parallel audit trail of these balances in its own system.

Therefore, investor assets are protected independently of the financial structure of either the portfolio management company or the custodian bank.

This separation is one of the most important security mechanisms of investment funds.

Two Separate Institutions, Two Separate Responsibilities

The security of investment funds is not entrusted to the authority of a single institution.

Responsibilities within the system are deliberately divided between two different institutions.

Portfolio Management Company

The Portfolio Management Company makes the fund's investment decisions.

Which stock will be purchased?

Which bond will be sold?

Which strategy will the fund follow?

These decisions are made by the Portfolio Management Company.

However, there is a very important limitation here.

The Portfolio Management Company cannot use investor assets for its own account, extend them as loans, pledge them as collateral, or include them in its own balance sheet.

Its role is solely to make investment decisions and manage the fund.

Custodian Bank

The Custodian Bank, on the other hand, does not make investment decisions.

Its responsibilities include;

• Safekeeping fund assets,
• Checking whether transactions comply with legislation and fund rules,
• Maintaining fund records securely,
• Ensuring the protection of investor assets.

Every transaction instruction issued by the Portfolio Management Company is independently checked by the Custodian Bank.

For this reason, no single institution can manage the entire process on its own.

No One Has Sole Control

The separation of responsibilities in investment funds has been deliberately established.

The Portfolio Management Company makes investment decisions but does not hold investor assets.

The Custodian Bank safeguards investor assets but cannot make investment decisions.

In other words;

One institution makes the decision but does not hold the money. The other institution safeguards the money but cannot make the investment decision.

This means that no institution has sole authority to dispose of investor assets.

This separation of responsibilities in capital markets is one of the most important security mechanisms protecting investors.

No One Can Use Your Money

One of the most common misconceptions about investment funds is the belief that money invested in funds can be used in the same way as bank deposits.

However, the situation is completely different in investment funds.

Under capital markets legislation;

• The Portfolio Management Company cannot use fund assets for its own account.
• The Custodian Bank cannot use fund assets in its own operations.
• Fund assets cannot be pledged as collateral, encumbered, or seized.
• Credit cannot be extended against fund assets.
• Fund assets cannot be included in the institutions' balance sheets.

In other words, the assets transferred by investors to the fund are used solely in line with the fund's investment strategy and cannot be used for any other purpose.

Why Does the Custodian Bank Charge a Fee?

This is also one of the questions frequently asked by investors.

"If it does not use the money, why does it charge a custody fee?"

Because the Custodian Bank's role is not limited to safekeeping the assets.

It also;

• Independently checks all transactions,
• Maintains fund records,
• Monitors compliance with legislation,
• Tracks fund assets completely separately from its own assets,
• Ensures that transactions are executed correctly and securely.

In addition, fund participation units belonging to investors are held in book-entry form at the Central Securities Depository of Türkiye (MKK). The Custodian Bank opens an account with MKK for each investor, and MKK charges the Custodian Bank expenses such as monthly custody commissions and account opening fees for this service. For transactions carried out through TEFAS, Takasbank similarly charges commissions to the Custodian Bank.

Therefore, the custody fee reflects not only the service of independently protecting and continuously monitoring investor assets, but also the expenses paid to institutions such as MKK and Takasbank to ensure the proper functioning of this process.

What Happens in the Worst-Case Scenario?

This is the issue investors are most curious about.

"What happens to my money if the Portfolio Management Company ceases operations?"

"Would my investment be affected if the Custodian Bank experiences financial difficulties?"

The investment fund system has been designed precisely with these scenarios in mind.

Fund assets are not the property of either the Portfolio Management Company or the Custodian Bank.

These assets are held in separate accounts opened in the name of the fund and are monitored at the Central Securities Depository of Türkiye (MKK).

Therefore, they are independent of the financial condition of these institutions.

In other words, adverse developments in the operations of the Portfolio Management Company or the Custodian Bank do not alter the legal ownership of investor assets.

The system has been structured to separate investor assets from institutional risks.

Security Does Not Come from the Custody Structure Alone

A strong custody system is an important safeguard for investors.

However, it is not sufficient on its own for a successful investment.

When evaluating a fund, looking only at the fund's name or category is not the right approach.

What truly matters is;

• Which assets the fund invests in,
• Which investment strategy it follows,
• How it manages risk,
• Which approach is used to construct the portfolio.

For investors, real confidence comes from the combination of a strong custody structure and transparent, disciplined, and sustainable investment management.

Conclusion

Confidence in investment funds is not built on trust in a single institution.

True confidence comes from a system in which responsibilities are separated, no institution has sole authority over investor assets, and the entire process is monitored through independent control mechanisms defined by legislation.

The Portfolio Management Company makes the investment decisions.

The Custodian Bank safeguards fund assets and independently checks whether transactions comply with legislation.

Fund assets, meanwhile, are held completely separately from the own assets of both institutions.

For this reason, investor assets in investment funds are protected within a structure that legally separates them from the institutions' commercial activities, financial condition, and potential financial risks.

This separation of responsibilities and multi-layered control system is one of the most important safeguards offered to investors by the capital markets.

A Note to Investors from BV Portföy

Investment decisions are often evaluated solely on the basis of expected returns. However, the first requirement of sustainable investing is understanding how the structure in which you invest actually works.

At BV Portföy, we believe that confidence for investors is built not only through performance, but also through transparency, accurate information, and a strong legal framework.

For this reason, we attach importance to ensuring that our investors understand not only our funds, but also how those funds are protected. Because the better an informed investor understands the structure in which they invest, the more soundly they can make their decisions.

Today, investor assets in investment funds are protected within a multi-layered security system formed by the Portfolio Management Company, the Custodian Bank, Takasbank, the Capital Markets Board of Türkiye, and independent audit mechanisms.

At BV Portföy, we view the protection of investor assets not merely as a legal obligation, but as one of the fundamental elements of our corporate responsibility. In this context, we conduct the custody services of our funds with Misyon Yatırım Bankası A.Ş., which is authorized by the Capital Markets Board of Türkiye, and place great importance on ensuring that our investors' assets are protected within an independent, transparent, and secure system.

Because in our view, confidence is the foundation not only of today, but also of a long-term investment relationship.

We believe that an informed investor looks not only at a fund's name or past performance, but also at its investment strategy, risk management, and the security mechanisms behind it. Because the foundation of sustainable investing is not only making the right investment, but investing within the right structure.