NISM Series V-A, Chapter 2. Updated Jun 2026, 9-minute read.
Structure of Mutual Funds in India
Understanding how a mutual fund is legally structured is fundamental to Series V-A. Chapter 2 covers the three-tier structure (sponsor, trust/trustee, AMC) and the roles of each entity in India's ₹60+ lakh crore MF industry.
Key takeaways
- Three-tier structure: Sponsor (sets up the fund) → Trust/Trustee (holds assets) → AMC (manages money)
- AMC must have minimum net worth of ₹50 crore and be SEBI-registered
- Trustee acts in fiduciary capacity — protects unitholders, not the AMC
- Custodian holds the actual securities; RTA (CAMS/KFintech) manages investor records
- SEBI MF Regulations 1996 (updated) govern all aspects of fund operations
- Open-ended funds: continuous buy/sell at NAV; Closed-ended: listed on exchange, fixed maturity
The Three-Tier Structure
1. Sponsor
The entity that sets up the mutual fund. Must have a sound track record (at least 5 years in financial services), positive net worth, and minimum 40% contribution to AMC's net worth. Examples: SBI (for SBI MF), HDFC Bank/Standard Life (for HDFC AMC).
2. Trust and Trustees
The mutual fund is constituted as a Trust under the Indian Trusts Act, 1882. The Board of Trustees (or a Trustee Company) holds the fund's assets in trust for unitholders. At least 2/3 of trustees must be independent (not associated with the sponsor).
Trustees are legally responsible for ensuring the AMC operates in compliance with SEBI regulations and in the best interests of unitholders. They can remove the AMC with SEBI approval.
3. Asset Management Company (AMC)
The AMC actually manages the investments. SEBI requires:
- Minimum net worth: ₹50 crore at all times
- SEBI registration and approval
- Separate custodian (cannot self-custody)
- Independent compliance officer and risk management systems
Supporting Entities
Custodian
Holds the physical/demat securities on behalf of the fund. Must be SEBI-registered. The custodian confirms trade settlements and maintains the fund's portfolio in safe custody.
RTA (Registrar and Transfer Agent)
Manages all investor-level transactions — unit allotment, redemption, SIP processing, folio statements. Major RTAs in India: CAMS (Computer Age Management Services) and KFintech (formerly Karvy Computershare).
Types of Mutual Funds
| Type | Open-ended | Close-ended | Interval |
|---|---|---|---|
| Buy/Sell | At NAV anytime | Exchange only (after listing) | At NAV during specified intervals |
| NAV | Calculated daily | Market price (may differ from NAV) | Calculated daily |
| Liquidity | High | Low (depends on exchange volume) | Limited |
| Example | HDFC Flexicap Fund | FMPs (Fixed Maturity Plans) | Quarterly Interval Funds |
Frequently asked questions
Can the AMC and Trustee be the same entity?
No. SEBI requires strict separation. The Trustee and AMC must be separate legal entities. The Trustee acts as an independent watchdog over the AMC.
What is a Fixed Maturity Plan (FMP)?
An FMP is a closed-ended debt mutual fund with a fixed maturity period (e.g., 1095 days). It invests in instruments maturing in line with the fund's tenure. FMPs provide predictable returns and tax efficiency (indexation benefit for long-term FMPs).
Written by Arpan Das.
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