What is the three-tier structure of mutual funds in India?

The three tiers are: Sponsor (sets up the fund, contributes ≥40% to AMC net worth), Trust/Trustees (independent oversight body), and AMC (manages investments day-to-day). This structure ensures separation of asset ownership and management.

What is the minimum net worth required for an AMC in India?

₹50 crore, as mandated by SEBI under the Mutual Funds Regulations 1996. AMCs must maintain this threshold at all times.

What does a Custodian do in a mutual fund?

The Custodian holds the fund's securities in safe custody and handles settlement of trades. It must be SEBI-registered and cannot be an associate of the sponsor.

What is the difference between a Custodian and an RTA?

The Custodian safeguards securities and handles trade settlement. The RTA (Registrar and Transfer Agent) manages investor records — processing subscriptions, redemptions, KYC, and account statements.

NISM V-A Legal Structure Mutual Funds: Sponsor, Trust & (2026)

Q: What is the role of trustees in a mutual fund?

Trustees hold fund assets on behalf of unit holders, oversee the AMC, approve new schemes, and ensure SEBI compliance. At least two-thirds of trustees must be independent of the sponsor.

Indian mutual funds operate under a 3-tier legal structure: Sponsor, Trust, and AMC. Chapter 3 of NISM V-A carries 4 marks & covers net worth requirements.

What Is the Three-Tier Legal Structure of Indian Mutual Funds?

Chapter 3 carries 4 marks but is one of the most numerically precise chapters — the exam tests exact figures like net worth requirements and ownership percentages. The three-tier structure is the foundation of every Indian mutual fund.

Three-Tier StructureIndian mutual funds operate under three distinct entities: (1) Sponsor — the promoter who sets up the fund; (2) Trust/Trustees — independent oversight body holding assets for unit holders; (3) AMC — the professional management company that runs day-to-day operations.

Who Is the Sponsor and What Are the Requirements?

The sponsor is the entity that establishes the mutual fund and applies to SEBI for registration. To become a sponsor, an entity must have a sound financial track record (profit in at least 3 of the last 5 years), a 5-year operating history in financial services, and must contribute at least 40% of the net worth of the AMC.

40%Minimum contribution by the Sponsor to the net worth of the AMC — a number directly tested on the NISM exam

What Do Trustees Do and How Are They Structured?

The trust holds the assets of the mutual fund on behalf of unit holders. Trustees are appointed by the sponsor and must be independent — at least two-thirds of trustees must be independent of the sponsor. Trustees oversee the AMC, approve new schemes, and ensure SEBI compliance. They do not manage investments.

Memorise: trustees approve scheme launches, but the AMC manages the money. If an exam question asks who approves a new scheme — trustees. Who selects the stocks — AMC/fund manager.

What Is the Minimum Net Worth of an AMC?

SEBI requires AMCs to maintain a minimum net worth of ₹50 crore at all times. This is a key number tested directly. The AMC is registered with SEBI separately from the trust and must have SEBI approval to launch and manage schemes.

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₹50 CroreMinimum net worth required for an AMC under SEBI (Mutual Funds) Regulations, 1996

What Are the Roles of the Custodian and RTA?

The Custodian holds the securities (shares, bonds) owned by the fund in safe custody and handles settlement of trades. The custodian must be registered with SEBI and cannot be an associate of the sponsor. The Registrar and Transfer Agent (RTA) handles investor records — processing purchases, redemptions, updating folios, sending account statements, and managing KYC records.

Chapter 3 Practice Questions

Q1. What is the minimum net worth an AMC must maintain as per SEBI regulations?

Answer: ₹50 crore. This is a directly testable number. AMCs that fall below this threshold must inform SEBI immediately.

Q2. What is the minimum contribution of a sponsor to the AMC's net worth?

Answer: 40%. The sponsor must hold at least 40% stake in the AMC's net worth.

Q3. Who holds the securities of a mutual fund scheme in safe custody?

Answer: The Custodian. The custodian is a SEBI-registered entity that holds securities and handles trade settlement, separate from the AMC.

Practice the full legal structure question bank — BullWiser NISM Mock Test →

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Continue to Chapter 4: Legal & Regulatory Framework or back to the full NISM V-A guide.