Legal Structure of Mutual Funds in India
Every mutual fund in India operates within a strict legal framework mandated by SEBI. Chapter 3 covers the three-tier structure — Sponsor, Trustee, and AMC — along with the roles of Custodian and RTA. Expect 5–8 questions from this chapter in the exam.
The Three-Tier Structure
A mutual fund in India is constituted as a Trust under the Indian Trusts Act, 1882, and registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996. The structure involves three principal entities, each with distinct roles and responsibilities.
| Entity | Role | Key Requirement |
|---|---|---|
| Sponsor | Promotes and sets up the mutual fund; like a promoter of a company | 5-year track record; positive net worth; 40% contribution to AMC net worth |
| Trust / Trustee | Holds assets in trust for unitholders; oversees the AMC | At least 4 trustees; 2/3 must be independent of the Sponsor |
| AMC | Day-to-day management of fund investments | Minimum net worth of ₹50 crore; approved by Trustee and SEBI |
Supporting Entities
- Custodian — Safekeeps the securities owned by the fund. Must be registered with SEBI. Cannot be an associate of the Sponsor.
- RTA (Registrar and Transfer Agent) — Maintains investor records, processes transactions, issues account statements. Example: CAMS, KFintech.
- Auditor — Audits the accounts of the AMC and the Fund separately.
- Fund Accountant — Computes NAV daily using market prices of securities.
Key Regulatory Requirements
SEBI mandates strict separation of responsibilities to protect investor interests. The Sponsor cannot directly manage investor assets — they must flow through the Trust structure. The AMC manages the portfolio but does not own the assets; the Trustee does, on behalf of unitholders.
Sample Practice Questions
Frequently Asked Questions
What is the legal structure of a mutual fund in India?
A mutual fund in India is constituted as a Trust under the Indian Trusts Act, 1882. The three-tier structure consists of the Sponsor, the Trustee, and the AMC.
What are the key entities in the mutual fund structure tested in NISM V-A?
NISM V-A tests knowledge of five key entities: Sponsor, Trust/Trustee, AMC, Custodian, and RTA. Each has distinct roles and regulatory requirements.
How many questions come from Chapter 3 in the NISM V-A exam?
Chapter 3 typically contributes 5–8 questions. The roles of AMC, Trustee, and Custodian are most frequently tested.