NISM-Series-V-A: Mutual Fund Distributors · Legal Structure of Mutual Funds in India

Mutual Fund Constitution and SEBI Registration Requirements

Updated 11 October 2026 · Fact-checked

In India a mutual fund is set up by a sponsor as a trust under the Indian Trusts Act, 1882, with a registered trust deed. It must be registered with SEBI. Trustees appoint an AMC through an investment management agreement. Each scheme then needs an offer document filed with SEBI before launch.

Understand Mutual Fund Constitution and Registration Requirements

A mutual fund in India is not a company. It is a trust. A person called the sponsor creates it, much like a settlor creates any trust. The sponsor hands the fund's property to trustees, who hold it for the benefit of the unit holders.

The founding document is the trust deed. It is executed by the sponsor in favour of the trustees. It must be registered under the Indian Registration Act, 1908. It must also contain the clauses that the SEBI (Mutual Funds) Regulations, 1996 require. Changes to it are not a private matter: they need SEBI's prior approval.

The trust cannot run investments by itself. So the trustees appoint an Asset Management Company (AMC). The terms of this appointment are in the investment management agreement (IMA), signed between the trustees and the AMC. The AMC manages the money, and the trustees supervise the AMC on behalf of unit holders. Think of it this way: the trust deed creates the fund, and the IMA hands over the day-to-day management.

No entity can carry on as a mutual fund without SEBI registration. The sponsor applies to SEBI on the prescribed form. SEBI checks the sponsor's track record, fairness and integrity, financial strength, and the structure proposed. If satisfied, it grants a registration certificate. The sponsor's eligibility includes a record of at least five years in financial services and a minimum contribution to the AMC's net worth (40% is the usual benchmark).

Registration of the fund is not the end. Every scheme needs its own approval path. The trustees approve the scheme. The AMC then files the draft offer document with SEBI, along with a due diligence certificate. Units are offered to the public only after SEBI's observations have been addressed. The offer documents are the SID, the SAI and the KIM.

Key formulas to remember

Legal form of a mutual fund: Mutual fund = Trust (Indian Trusts Act, 1882) + registered trust deed (Indian Registration Act, 1908); Not a company, not a society, not a partnership. This is a favourite MCQ.
Who does what: Sponsor → creates trust | Trustees → hold property, supervise | AMC → manages | Custodian → safekeeps securities; The sponsor is like the settlor. Trustees are the legal holders for unit holders.
Key documents: Trust deed: sponsor ↔ trustees | IMA: trustees ↔ AMC; Match the document to the two parties. The IMA is signed by the trustees, not by the sponsor.
Registration chain: Fund registered with SEBI first → scheme approved by trustees → draft offer document filed with SEBI by AMC → launch; Registration applies to the fund. Offer document filing applies to each scheme.
Sponsor eligibility (benchmarks): At least 5 years in financial services | sponsor contributes at least 40% of AMC's net worth; Learn these two numbers. Check the latest NISM workbook for other conditions.

How to solve Mutual Fund Constitution and Registration Requirements questions

Most questions on this topic test who does what and which document links which parties. Use this method to avoid trap options.

1Read the question and mark the keyword: registration, trust deed, IMA, scheme approval or offer document.
2Identify the stage. Is it creation of the fund, appointment of the AMC, or launch of a scheme?
3Name the parties involved at that stage. Trust deed: sponsor and trustees. IMA: trustees and AMC.
4Recall the governing law or authority: Indian Trusts Act, 1882; Indian Registration Act, 1908; SEBI.
5Check whether the question is about the fund (registration) or the scheme (offer document filed with SEBI).
6Eliminate options that call the fund a company or give the sponsor the role of managing investments.
7Pick the option that matches both the stage and the parties. Reread once for words like 'not' or 'except'.

Quickest way: Stage-and-party shortcut

When to use it: Use it when you have under a minute per question and the options are close.

Ask: fund-level or scheme-level?
Fund-level: trust, trust deed, SEBI registration, sponsor.
Scheme-level: trustees' approval, SID, SAI, KIM, SEBI observations.
Linking documents: trust deed joins sponsor and trustees, IMA joins trustees and AMC.
Reject any option where a company law or a wrong party appears.

Common mistakes in Mutual Fund Constitution and Registration Requirements

Saying a mutual fund is a company under the Companies Act.
The AMC is a company, so students assume the whole fund is one.
Fix: Remember: the fund is a trust. Only the AMC (and a trustee company, if used) is a company.
Saying the IMA is signed between the sponsor and the AMC.
The sponsor sets up the AMC, so it feels natural that the sponsor signs.
Fix: The IMA is between the trustees and the AMC. The sponsor signs the trust deed.
Confusing the Registration Act with SEBI registration.
Both use the word 'registration'.
Fix: The trust deed is registered under the Indian Registration Act, 1908. The mutual fund is registered with SEBI. These are two different registrations.
Thinking SEBI registration of the fund lets the AMC launch any scheme freely.
Students merge fund-level and scheme-level steps.
Fix: Each scheme needs trustee approval and an offer document filed with SEBI before launch.
Believing the trust deed can be changed by the sponsor alone.
The sponsor is seen as the owner of the fund.
Fix: Changes to the trust deed need SEBI's prior approval, and the interests of unit holders must be protected.
Assuming trustees manage investments.
Trustees hold the fund property, so they look like managers.
Fix: The AMC manages investments. Trustees supervise the AMC and protect unit holders.

Worked examples

Example 1

The investment management agreement of a mutual fund is signed between which two parties? (A) Sponsor and trustees (B) Trustees and the asset management company (C) Sponsor and the asset management company (D) Asset management company and the custodian

Show the solution

The keyword is 'investment management agreement', so the stage is appointment of the AMC.
The trustees hold the fund property and appoint the AMC to manage it.
So the IMA is between the trustees and the AMC.
Option A describes the trust deed. Option C wrongly puts the sponsor in. Option D is a service arrangement, not the IMA.

Answer: (B) Trustees and the asset management company

Example 2

Which statement about the constitution of a mutual fund in India is correct? (A) It is a company incorporated under the Companies Act (B) It is a trust under the Indian Trusts Act, 1882, with a trust deed registered under the Indian Registration Act, 1908 (C) It is a society registered under the Societies Registration Act (D) It is a partnership firm registered with SEBI

Show the solution

Recall the base rule: a mutual fund is a trust.
The sponsor executes the trust deed in favour of the trustees.
The trust deed is registered under the Indian Registration Act, 1908.
Options A, C and D name other legal forms, so they are wrong.

Answer: (B) It is a trust under the Indian Trusts Act, 1882, with a trust deed registered under the Indian Registration Act, 1908

Exam tips

Memorise the two links: trust deed is sponsor and trustees; IMA is trustees and AMC. Expect at least one question on this.
Watch for options that call the mutual fund a company. They are traps.
V-A has no negative marking, so never leave a question blank. Eliminate and guess.
Keep fund-level steps (registration with SEBI) apart from scheme-level steps (offer document filing).
Read 'except' and 'not' carefully. Questions on roles often ask which statement is incorrect.

Practice questions from Legal Structure of Mutual Funds in India

Mutual Fund Constitution and Registration Requirements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Mutual Fund Constitution and Registration Requirements: frequently asked questions

How is a mutual fund registered with SEBI?

The sponsor applies to SEBI on the prescribed form. SEBI examines the sponsor's track record, integrity and financial strength and the proposed structure. If satisfied, it grants a registration certificate, and only then can the fund operate.

What is the difference between a trust deed and an investment management agreement?

The trust deed creates the mutual fund as a trust. It is executed by the sponsor in favour of the trustees and registered under the Indian Registration Act, 1908. The IMA is signed between the trustees and the AMC, and it sets out how the AMC will manage the fund.

Who approves a new mutual fund scheme?

The trustees approve the scheme. The AMC then files the draft offer document with SEBI along with a due diligence certificate. Units can be offered to the public only after SEBI's observations are addressed.

Is a mutual fund a company or a trust?

It is a trust. It is set up under the Indian Trusts Act, 1882. The AMC that manages it is a company, but the fund itself is not.